Since Thursday the stock market has been on a roller coaster ride with the majority of the ride in a downward direction.  Volatility was sparked by comments from several voting members of the Federal Reserve Bank that there might be a .25% bump in interest rates at the end of this month.  The upset in the market was also driven by the low volatility that the market has sat through for most of the summer.  Many investments have been put together based on the Fed not raising rates before December and volatility on holiday until the end of the year.

The prospect of higher interest rates in the U.S. has also put upward pressure on the dollar.  So not only are domestic stocks affected by a rate increase but also emerging markets which have borrowed dollars and must now repay at a higher interest rate.  The anticipated bump in the dollar’s value has also impacted the price of gold, oil and other commodities which are traded in dollars.

We don’t know if the Fed will raise rates at their meeting next week or if this is a head fake.  Certainly the Fed would love to bring interest rates back to their historically normal level.  The all-time low rates are hurting banks, insurance companies, pension plans and savers, many of whom are seniors who would traditionally live on a fixed income.  Low interest rates have forced many who would depend on CD’s and bonds to seek returns from riskier investments in the stock market.

Please keep in mind that a market correction is what our portfolio has been expecting.  The near 50% cash position we have maintained for much of the year is designed to give us buying power when the market goes on sale.