What's up? Graham It's guys here. So we've just had a major announcement from the Federal Reserve that changes everything. and with only two more weeks until their final rate hike of 2022, you're going to want to hear this out. After all, we've already just seen their fastest trade hike in history, but housing prices are slowly increasing. Goldman Sachs Believes that oil might continue surging higher and China's lockdown protests are becoming a pivotal moment for the entire world. That's why, if you're curious why the Market's about to have a potential freak out, it's important to discuss exactly what's going on, the chances of a larger than expected rate hike in just 14 days from today, and which signals have historically pointed to the bottom of the stock market on this episode of the IRS is always watching, especially if you make 600. Although before we start, real talk if you have a quick moment and you want to help with the channel, it does help out tremendously if you hit the like button or subscribe. if you haven't done that already I Know it's annoying to ask, but after Gathering all the data across 1500 videos and multiple channels even asking does make a difference. so so thank you for doing that. Here's a picture of Handsome Squidward So thank you so much And now let's begin all right. So first, we have to talk about the next rate hike that's coming up very soon on December 14th because this is quickly becoming one of the most anticipated meetings of the entire year. That's because the Federal Reserve has a near direct impact and the value of almost everything from stocks to bonds to real estate and even the amount that you get paid in a savings account. So here's how that works. On the most basic level, the Federal Reserve is what's known as a central Bank, whose role is to oversee our economy, regulate financial institutions, and control the amount of money that goes into and out of our system. Their priority over everything else is just to make sure that the U.S has a strong labor market, maintains maximum levels of employment, and operates in such a way that moves us away from record high inflation. I Guess more. Simply put, they just want to balance growth with making sure the price of eggs doesn't hit five dollars. it doesn't. So as a way to do that, they decide whether or not they want to raise or lower. What's called the Federal funds rate, which is just a really fancy way of saying. This is the interest rate that Banks charge other Banks anytime they lend each other money. When this rate increases, then lending becomes more expensive. People and businesses have less discretionary income and the economy gradually slows down. Whereas if the interest rate decreases, you get stock market experts Dogecoin Millionaires and trading Halls So a lot rides on what they decide to do in just another two weeks. In fact, this is going to be the last rate hike through February of 2023. And in terms of what they've already indicated, along with what's happening throughout stocks, bonds, and real estate, here's what you need to know and the warning for what's soon about to come. To start, let's talk about the stock markets because this is where things get interesting. Now on the most basic level is interest rates increase. Stocks generally decline because higher borrowing costs eats away at the value of future cash flow, and as a result, they fall on top of that. The higher rates go, the more bond yields increase, and the less appealing everything else looks as an investment. After all, why take the rest risk in stocks when you could get a one-year Government Bond that pays you close to five percent with almost no risk whatsoever. But in terms of just how much this affects stocks, here's what I found surprising: A recent study broke down investors into two categories. One considered the choice between a risk career return at five percent or a risky return of ten percent, while the second group made the choice between a risk-free return of one percent or a risky return of six percent. In both of the scenarios, the risky investment pays the exact same five percent more, but the results were vastly different. It was found that the low risk-free returns cost significantly more risk taking for higher yielding Investments Even though technically the difference in payout was the exact same, those findings began to normalize. Once risk-free interest rates are higher, even when the riskier Investments still pay the exact same amount more. Basically, the conclusion they found was this: when risky Investments pay substantially more than the risk-free return, investors are more likely to go for it. In this case, the difference between going from five to ten percent is double, but going from one to six percent is a five time higher return. So when viewed in proportion, the riskier investment seems like the way better option when your other alternatives are paying you Pretty much nothing. But the implication for today is that as interest rates go up, investors won't need to take as much risk throughout other assets like stocks, real estate, or even cryptocurrency, and as a result, the market will likely decline as people move towards the safer, guaranteed Investments Housing prices are also a prime example of exactly this, and it's happening right now. Apollo Research found that we're currently seeing the fastest real estate slow down on record in terms of home sales and Bank of America's CEO believes that we're in for another two years of paying for the housing market. I Think it's no surprise that throughout most of the country, it's simply an effective supply and demand. and if buyers no longer have the purchasing power they once did, then either sellers will have to keep their home on the market for longer or reduce it to a price that someone is willing to pay. And that's what we're beginning to see. In this case. Values have fallen an average of one percent in September. Nearly 3 30 percent of sellers have cut the price and fun fact, but Thursdays are the most common day for a price reduction the more you know. Anyway, the general sentiment indicates the housing market is likely going to continue slowing down throughout 2023. And in terms of how the Federal Reserve is responding, there are a few factors that are beginning to work against them. And no, it's not robot landlords who are buying up houses. Instead, we have number One China's protests. Initially, this began from the zero covet policy where lockdowns and tight regulation were strictly enforced. This resulted in delayed manufacturing and production, higher costs, and in return, higher inflation. Here in the United States. However, many of their citizens began to protest these restrictions, and even though it's too early to tell how this is going to play out from a financial standpoint, the additional uncertainty is leading to a decline across markets, and some investors believe that this could also lead to an increase in inflation. Second, we have oil prices. This metric has an extremely close correlation with our inflation rate because the higher oil prices go, the more expensive it is to ship, manufacture, and produce our items. For instance, if the cost of oil goes up by 10 percent, all of a sudden, your trips become more expensive. Your grocery items cost a little bit more to deliver. Your Amazon packages cost a little bit more to produce, and that, in turn scares Jerome Powell to raise rates even more. If, despite oil having come down slightly from its record high prices are still 50 percent higher than they were a year ago. and with the chance of a supply cut, prices might continue to remain high for longer than we think, and that could cause the Federal Reserve to keep their interest rates higher for longer. And third, we have housing costs on the most basic level. Shelter makes up a third of the overall inflation report, and even though rental growth is slowing down, most landlords have indicated that they intend to continue raising their rates, albeit at a slower Pace than before Now obviously, rental growth is measured on a month over month and year-over-year basis So Eventually, prices are going to begin to level out, but in the short term, the Federal Reserve may choose to wait until this happens, and that could be anybody's guess. So in terms of their latest strategy and what they've indicated is most likely going to happen. here's what you need to be made aware of. See: Two weeks after every policy meeting, the Federal Reserve releases a detailed record of their discussion and what's known as the FED minutes. This gives us a lot of insight into the stance on monetary policy, upcoming rate hikes, and the expectations for the near future, and the most recent report gave us a lot of juicy details. To start, they admitted that the most recent inflation report provided very few signs that inflation pressures were abating, implying that they'll have to probably keep rates higher for longer than expected. However, it was also noted that a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate, and this soon is giving a lot of investors hope that this would happen in their next meeting December 14th. If this occurs, it would be the first sign of What's called the Federal Reserve pivot where they reverse the rate hike tightening cycle that was started at the beginning of the year and that would probably lead to a huge boost throughout the stock market and thrown almost everything. So what's the chances this happening? Well, if you ask investors, they're pricing in a 67 chance of a 50 basis point rate hike in another two weeks with a 33 chance of a 75 basis point rate hike just like we've seen throughout the last few months. But ultimately all of this will depend on the latest inflation report, which is going to be released a day prior on December 13th. Because of that, I Think it's pretty safe to say that if inflation comes in below expectations, most likely the Market's going to Rally through the beginning of 2023, but if it comes in higher than expectations, then probably all bets are often. Most likely we're going to see a pretty quick sell-off through the end of the year and maybe even a little bit longer. And by the way, if you want updates like this before, I'm able to make a full video on them or in more detail than I'm able to discuss here: I Do have a newsletter Down Below in the description it's totally free. You can also sign up for it or not, but signing up for it does give me a good indication of which topics you want to see more of. So again, the link is down below. It'll be the first link, so enjoy. Anyway, as far as when we could see the stock market bottom and which signals we have to look out for to see just how well or how bad your portfolio will do, here's a few things to consider now at a first glance in terms of a market bottom, it's no surprise that right now we have what's called an inverted yield curve, which is correctly predicted Nine recessions since 1955, and on top of that, the yield curve is the most inverted it's been since 1999, right before the.com crash. This occurs when short-term yields begin paying more than long-term yields. Therefore, they invert signaling that investors see more risk investing in the short term than they do in the long term. Even more severes that were currently 100 percent inverted where every term is paying more than the 30 years. So as far as where we go from here, if we look all the way back to the 1960s, we could see that when the three-month 10-year yield inverts for more than 10 days, it took an average of 311 days to actually enter a recession. And once in a recession, it lasts for an average of 17 and a half months. Now, it's no surprise the yield curve has already been inverted for most of this year, which means that yeah, something has to give. But in terms of this equating to a stock market bottom, Morgan Stanley says that generally speaking, we don't see Bear Market bottoms without Panic selling similar to what was seen in 2001 and 2020.. historically, no Bear Market has ever bottomed without a vix reading of 45 or more. And sure enough, in recent history, that's been true. However, I will say that from my own experience, nothing happens exactly as you think it will, and all of these historical Trends will be true until the one time they're not. That's why it's dollar cost averaging into index funds. Okay, jokes aside I Have a feeling that a lot is going to be revealed in their upcoming meeting in December and hopefully we're going to be at the upper end of where interest rates might settle. Until then, I would expect to see a lot more volatility and I'd also be curious to see what you think about all of this and whether or not you see prices coming down in your area. If you feel like there are an inflation is coming down, then you're a part of the two-thirds of investors who think that December is going to be the moment the FED takes the pedal off the gas. Otherwise, we could be off to a rough start in 2023, especially if you have not already subscribed. So with that said, you guys thank you so much for watching! Also, feel free to add me on Instagram And don't forget that our sponsorepublic.com is giving you a bonus Down Below in the description. so if you want to take advantage of that, all the information is down below. Thank you so much for watching And until next time.