Some folks worry about the return of turbulence—their term—to stock market pricing.
Market turbulence is leading some investors to call on the Federal Reserve to halt its campaign of interest rate increases….
No need. The Fed needs to get its benchmark rates back to levels historically consistent with its goal of 2% inflation instead of its heretofore artificially suppressed rates. It’s getting close, but the Fed isn’t there yet—it has a couple-three more rate increases yet to go.
Those investors need to understand a couple of things about volatility—or turbulence—in the market. For short-term traders, volatility presents buying opportunities. For long-term investors, volatility is just noise in the system, well worth ignoring. For yield chasers, volatility represents opportunities to go broke in short order, culling the herd for the benefit of the rest of the trading/investing population.
Nevertheless, we get guys like Stanley Druckenmiller, who once ran a George Soros hedge fund and has hectored the Fed to raise rates from those artificial lows, saying
I would pause and see if the market knows something we don’t[.]
It’s almost always the case, though, that the market knows something we don’t. And I include my august self in that “we.”
The Fed needs to stay the course, or if a change in pace is warranted, the Fed needs to get quickly to those historically consistent levels. In either case, the Fed then would need to sit down, be quiet, and let the market do what it knows more about than the rest of us.