Beware of Fed Meetings

Last few days have been so kind to traders. A number of good news came out to support the uptrend of the market. The U.S. economy was stronger than originally thought in the first half of the year, with growth in wages and salaries one-third higher than previously estimated. Real gross domestic product for the second quarter was revised to 2.9% annualized, from the earlier estimate of 2.5%, the government said. The core inflation measure, closely watched by the Federal Reserve, has been revised. It rose 2.8% in the second quarter, down from 2.9% reported earlier. And finally the crude price is going down. Some are hoping they would be able to buy gas at close to $2 a gallon by the end of 2006.

In the midst of all these there are still causes of concern. Any bad news may hit this upward journey of stock market. Traders may start collecting the profit soon. So, you must make sure you do not get caught up at the peak. In particular, one must keep in mind the following dates when you may expect severe downturns in stock prices: September 20, October 24, December 12. These are the meeting dates of the Federal Reserve when the committee would decide the fate of the short term interest rate. If traders anticipate a hike in the rate, they would sell off in fear of lower level of consumer spending and less corporate earning. If Fed does not hike the rate, that would be read as an indication of downturn in our econonomy and traders may sell off in that case too.

So, just keep those dates in mind. If you see too many positive news in between, don't just get carried away. Although we all know the basic motto of investing, that is 'buying low and selling high', most of us trade out of emotion. We sell when the world looks grim and we purchase when the world is singing songs. Just be reasonable in coming months. Select stocks or funds carefully and, if possible, take those opportune moments before or after FOMC meeting dates to purchase some of those stocks in your selected list at a lower price.