Navigating the Financial Landscape: Investing Amidst Fed Meeting Speculations
As the date of the Federal Reserve’s upcoming Federal Open Market Committee meeting draws near, global financial markets are brimming with anticipation. Scheduled for July 25-26, the meeting is expected to include an interest rate decision, making it a crucial event for investors. Preceding this, the US consumer price index (CPI) data for June indicated a gradual slowdown in inflationary pressures. This has led to widespread predictions that the Federal Reserve might implement a 25 basis points interest rate hike during this meeting. Nevertheless, some experts believe that this could potentially mark the conclusion of the current rate hike cycle.
According to the US Department of Labor’s data, the US CPI climbed 3% in June compared to the previous year, experiencing a decline for 12 consecutive months and reaching its lowest level since March 2021. Similarly, the core CPI, which excludes food and energy prices, rose by 4.8% year on year and 0.2% month on month, both being the lowest recorded figures since 2021. These statistics suggest that inflationary pressures might be tapering off.
It is widely anticipated that the Federal Reserve will proceed with a 25 basis points rate hike in July, raising interest rates to a range of 5.25% to 5.5%. However, many experts consider this to be the final rate hike in the current cycle. CME’s FedWatch tool reported that, as of July 20, the probability of the Fed implementing a 25 basis points rate hike in July was nearly 100%.
Looking ahead, the focus of the market will shift to the future trajectory of the monetary policy, with a key moment being the September meeting. During this meeting, Fed officials will publish a dot plot of interest rate expectations, providing insights into the monetary policy’s direction for the remaining three months of the year. Regardless of whether a rate hike occurs in September or not, the likelihood of a rate hike in the fourth quarter is relatively low. As a result, many investors view September as a potential turning point for the monetary policy.
Before September, the market might not witness significant positive developments, and the possibility of negative news could increase. Considering the predictions made in the past about a potential market decline in the second half of the year, some investors might not wait until September before deciding to sell their assets. Additionally, after several failed attempts to rally, the probability of a market decline becomes higher, while the likelihood of a sideways trend or a bullish surge becomes smaller.
However, the scenario could change after September, with the market likely to show a gradual upward movement. This anticipation stems from expectations of a potential rate cut in the following year, which may influence market sentiment ahead of time. While the support level for bitcoin appears to be around $28,000 based on historical data, it is probable that this level could be broken. Nevertheless, with the reduced likelihood of interest rate hikes after September, the market might even enter a rate cut cycle. While higher interest rates do carry certain risks, expectations are often priced into the market well in advance. Consequently, major funds might rotate to seek opportunities before the September Fed meeting.
Moreover, an intriguing logic emerges when comparing the 2023 market to that of 2015 and 2019. The first half of 2015 and 2023 exhibited market volatility, while the first half of 2019 experienced a rapid market surge. Similarly, the second half of 2015 saw a market rise, followed by a decline in the second half of 2019. This pattern suggests that the second half of 2023 could potentially witness a decline before any subsequent rise.
Laying the Foundation for the Next Bull Market
Regardless of the market’s movements, one thing remains certain: investors should seek opportunities to buy low during declines. Now, let’s delve into the strategy for positioning oneself during the next bull market.
For small capital investors, a recommended approach is to allocate 60% of their capital to regular investments across 2-3 sectors, each focusing on undervalued assets. These assets need not necessarily be the leading ones, but conducting thorough research on the projects is essential before making any purchase decisions. Evaluating endorsements and personal reasons for optimism about the project or industry is crucial. Optimal asset size would typically be between $8 billion and $20 billion.
Allocating 15%-20% of funds to so-called “terrier” coins, such as dogecoins, shib, pepe coins, etc., is advisable. However, it is essential to choose currencies that have sound mechanisms, active projects, and are already listed on exchanges to minimize risks associated with speculative tokens.
The remaining 20% of the funds can be used as active capital. Every bull market introduces new narratives that drive market momentum. This portion of the investment can be used to speculate on new currencies or strategically buy favored assets at opportune moments.
Lastly, an essential principle to remember is to gradually withdraw profits once they are made. Failure to do so could expose profits to significant losses during a major market decline. Hence, exercising caution and employing effective risk management is paramount.
In conclusion, the Federal Reserve’s interest rate decision has taken center stage for global investors. Despite current inflationary pressures showing signs of moderation, expectations remain high for a 25 basis points rate hike during the upcoming meeting. However, the future path of monetary policy remains uncertain, and investors should closely monitor the September Fed meeting and subsequent data changes. Small capital investors should devise rational investment strategies aligned with their risk tolerance and objectives, always prioritizing capital safety and risk management.