The Impact of Rising Interest Rates Makes Stocks Closed

Rancakmedia.com - Do you know the impact of increasing interest rates is feared to make stocks closed. Stocks in the United States ended the day lower after a volatile session on Thursday as the market attempted to recover from the previous day's sell-off.

Following a 3.3% drop on Wednesday, its worst one-day session since February last year, the Nasdaq accelerated its pace back in intraday trading but ended in the red. The Dow and S&P 500 also closed lower.

Department of Labour's Monthly Employment Report

The reading of the December numbers is likely to provide a more significant look at the strength of hiring and labor force participation key measures of the US economy, becoming more important as markets continue to weigh the full effects of the Omicron COVID wave.

Before the latest virus surge had a significant effect on the market labor, economists expect the report to reflect a healthy month of job creation, with a consensus forecast of 444,000.

Investors also weighed in on fresh data on first weekly jobless claims Thursday morning that showed the jobless file first rose but stayed around a 52-year low last week, signaling continued improvement in the labor market as strong demand for employees surged into the new year. .

Continued pressure on the tech front continued into Thursday, with a near-record number of tech stocks having market value down from a 52-week high, according to Bloomberg Data.

Wells Fargo Wealth & Investment Management senior global equity strategist Scott Wren told Yahoo Finance Live: "If you become anxious about a 4% or 5% drop, you shouldn't have a lot of money in stocks."

"You're splitting hairs there in months, whether the Fed places its first rate hike in March or June."

A similar view was expressed by Craig Erlam, market analyst at OANDA, in an interview with Yahoo Finance Live.

"The market needs time to settle down, we start earnings season in a few weeks," he added. In other words, "I believe that's the point where individuals start to have a more sensible perspective on this market."

Interest Rate Increase in 2022

After all, investors' expectations for 2022 are heavily influenced by the rate of increase interest rate. Markets will continue to check inflation rates into the new year and keep a close watch on how strongly the Federal Reserve may choose to act.

Cresset Capital's chief investment officer, Jack Ablin, told Yahoo Finance Live: “We believe inflation is likely peaking now. We believe the natural path of inflation will be downward, but either way, it looks like inflation will likely trend back. to 2 1/4, 2 1/2, at the end of the year.”

"The key component of the equation is the Fed," Zephyr market analyst Ryan Nauman told Yahoo Finance Live. “The market doesn't overreact too much when the Fed starts raising rates – that's the pace – and if the Fed increases the pace of rate hikes and there are some surprise rate hikes there to tame inflation, that's when we can really have an impact on equity markets. and saw a sharp decline.”

Impact of Increase in Bank Indonesia Interest Rate

Below we have summarized a list of the positive and negative impacts of an increase in Indonesian bank interest rates, namely:

Positive Impact of Increase in BI Interest Rate

The following are the positive and negative impacts of increasing interest rates that you can find out, namely:

1. The Rupiah Exchange Rate Strengthened

Economist at the Center of Economic and Law Studies Bhima Yudhistira said that the increase in BI's benchmark interest rate was to make the rupiah currency stronger.

This is because interest rates make foreign capital enter Indonesia because investors will be interested in yields on Indonesian debt securities which are becoming attractive.

"That can prevent capital outflows so that the rupiah can be more stable."

2. Controlling Inflation

The BI interest rate hike policy was taken with the hope of controlling inflation so it would not soar high.

However, this process will only be felt in the long term because current inflation is caused more by rising food and energy prices, not by the large supply of money.

3. Yields on Indonesian Bonds Rise

The increase in interest rates will benefit investors because it can increase yields on Indonesian debt securities.

The reason is that by increasing BI interest rates, Indonesian debt securities can reduce the difference in interest or yield with United States (US) debt securities.

4. Foreign Capital Flow In

In return for the increasingly attractive results of Indonesian debt securities, investors will be hunting to enter the Indonesian bond market. This can prevent the outflow of foreign capital.

5. Compensating for the Decrease in Export Proceeds

BI raised interest rates as a reference to be aware of a reversal in commodity prices which have been soaring and benefiting Indonesia as an exporter of a number of commodities.

This is because if commodity prices fall, the demand for export earnings can be suppressed so that capital flows can leave.

Negative Impact of Increase in BI Interest Rate

The following are the negative impacts of an increase in the BI interest rate that you need to know, including:

1. Credit Interest Rises

The increase in deposits adds to the burden on banks because they have to pay higher yields on deposits to customers.

2. Disrupted Banking Credit Growth

This will have an impact on bank credit growth. This is because the rising credit interest will make people reluctant to take loans from banks.

3. The Purchasing Power of Communities and Businesses is Decreasing

The public will feel burdened by credit interest which has increased after BI raised its benchmark interest rate.

4. Economic Growth Can Slow Down

So it can erode people's purchasing power and slow down the growth of people's purchasing power and slow down national growth so that this will contract economic growth.

FAQs

Below we have summarized some frequently asked questions about interest rates, as follows:

Can Raising Interest Rates Reduce Inflation?

With the amount of money circulating in the community getting smaller, the activity of raising interest rates will reduce the rate of inflation. One of the monetary policies carried out by the Bank of Indonesia is to increase bank interest rates.

Conclusion

Stocks in the United States ended the day down for the second day in a row on Thursday. The Nasdaq had its worst one-day session since February last year, while the Dow and S&P 500 also closed lower.

The Labor Department's monthly employment report, which will be released on Friday, has been a hot topic this week.

Wells Fargo Wealth & Investment Management senior global equity strategist Scott Wren: “If you become anxious about a 4% or 5% drop, you shouldn't have a lot of money in stocks”. Cresset Capital's Chief Investment Officer, Jack Ablin: "We believe inflation is likely to peak at this time."