Contrary to popular belief, the stock market's trend is not determined by interest rates, as some historical data shows.
Throughout 2023 major technology giants such as Nvidia (NASDAQ:NVDA), Apple (NASDAQ:AAPL), Google (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT) have led the stock market higher. However a recent financial headline said that the tech sector is under pressure as Fed Chief Jerome Powell indicates that higher interest rates on are the way.
This raises a perplexing question, considering there have been instances in the past few years when the Federal Reserve signaled higher rates, yet the technology-heavy NASDAQ Composite rallied.
Hence it is highly unlikely that interest rate fluctuations are the primary driving force behind the stock market's direction, including the technology sector.
The Dow Industrials experienced an uptrend from March 2003 to October 2007, during which interest rates also climbed. Similar patterns can be observed in decades past where stocks and interest rates rose concurrently.
If interest rates or any other external factors don't dictate the stock market, then what does?
In essence, it is investor psychology and market sentiment that holds the key.
Looking at investor psychology, other key market indicators such as accumulation distribution, company earnings report, and forward earnings estimates, you can forecast low- risk buy-long sell-short stock picks that include buy sell entry, stop-loss, and take profit area price targets.
In case the market is going against your position use a stop-loss percentage of no more than 8% or more to keep a small loss from becoming potentially a much larger loss.
In doing so you will live to trade another day with the bulk of your funds instead of taking much larger double-digit losses. Stop-loss is a tool. Use it to your long-term benefit.
