Investors and traders around the world tend to play it safe on days when the Federal Reserve releases its scheduled statement which happens eight times a year. While the Fed certainly can move the markets, not all seasoned investors find value in parsing the Fed’s words. “Its a complete and total waste of time,” says Barry Ritholtz, founder, Ritholtz Wealth Management. “How does that help you invest?”
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Ritholtz and others feel it's wiser to spend more time analyzing company fundamentals and corporate profits then it is comparing new FOMC statements with old ones. “We know the Fed is going to raise interest rates eventually, they’ve told us its probably later this year.”
According to the Wall Street Journal’s survey of 50 economists the Federal Funds Rate will increase to 0.29% by June. The Fed’s statement released on Wednesday, give or take some wording changes, confirmed what many already know the “economy is expanding at a solid pace.” A sign that a rate hike remains in the pipeline this year, for Ritholtz that’s a good thing. “The economy seems to be robust enough to handle a 1% or 1.5% or maybe eventually a 2% rate.”
Even so the Fed’s statement jolted U.S. markets Wednesday pushing the S&P 500 (^GSPC) and the Dow Jones Industrial Average (^DJI) down more than 1% each. Come Thursday, U.S. stocks regained those losses and then some powered by strong earnings from the likes of Facebook (FB) and a management shake-up at McDonald's (MCD).
While communication from the Fed is critical, it should be one of many tools investors investors use when making investment decisions.
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