Should Suspend Fund Investments Amid Stock Plunge, Gold Surge, and Rate Hike Fears?

The Dow Jones Industrial Average in the United States continued to decline last night, falling from 36,513 points to the current 35,028 points in just four trading days, a drop of 1,500 index points. Over the same four trading days, the Nasdaq Composite Index saw an even greater decline, with a drop of over 6%. On December 27, 2021, the net value of the Huaan Fund pegged to the Nasdaq Index was 4.742 yuan, and by the day before yesterday, it had fallen to 4.32 yuan, a decline of 8.5%. Many believe that this sudden drop is related to the high inflation in the United States and the increasingly strong expectation of interest rate hikes. As a result, several friends asked me yesterday in unison, since the stock market is not看好ed in the face of interest rate hikes, should they pause their regular investment in funds?

01, U.S. Stock Market Situation

The U.S. stock market, which closed in the early morning, was not very optimistic. The three major indexes fell again, with the Dow Jones Industrial Average down by 339 points and the Nasdaq down by 166 points. In the past five trading days, all three indexes have been falling overall, with the Nasdaq and the S&P 500 rising only once in five trading days, while the Dow Jones Industrial Average fell for all five consecutive trading days. The reason is also very simple: under the current high inflation, the expectation of interest rate hikes is becoming stronger, and the Federal Reserve's interest rate meeting in January is approaching. There are many different views in the market about the decisions the Federal Reserve is about to make, whether to raise interest rates in March or to raise them in advance in January, and whether to raise them by 0.25 or 0.5, there are many uncertain factors.

In recent days, technology stocks have seen a larger decline. Last night, the U.S. stock market's new energy vehicle sector continued to fall, and all three Chinese listed new energy vehicles fell for the second consecutive day. It is estimated that this will also put a lot of pressure on the new energy funds in the A-share market after it opens today.

02, Impact on A-shares

In the habitual thinking of most investors, if the U.S. stock market falls, the A-share market will fall even more severely. For example, like the U.S. stock market fell in the early morning yesterday, among which the Nasdaq fell quite a bit, which also directly led to the decline of the A-share market during the day yesterday, among which the ChiNext Index also fell quite a bit. However, on the other hand, we also need to see that the current decline in the U.S. stock market is a habitual decline. Before some important interest rate meetings, because there is still a lot of uncertainty about the actions of the Federal Reserve, this will often be reflected in advance in the stock market.Looking back at last year's several Federal Reserve meetings, before each meeting, market volatility increased, and the panic index rose. After the meetings, regardless of whether the Fed's statements were dovish or hawkish, once the news was confirmed, the market would stabilize again and gradually rise.

Therefore, after next week's meeting, it is estimated that the market will also improve.

However, for A-shares, it is more troublesome. There is not much time left for A-shares. After next week's Fed meeting, it is already the last few trading days before the Spring Festival. So, the probability of A-shares rebounding before the Spring Festival is not high. It is very likely that they will maintain the current volatility, and opportunities will be reserved for after the Spring Festival.

03, Gold prices soared

Yesterday, the price of gold rose sharply, which has a certain factor of risk aversion.

For large international capitals, investing in gold is a very good choice, but for ordinary investors, it is a relatively poor choice.

Most ordinary people invest in gold through physical gold or paper gold. Even in the rising cycle, compared with funds or stocks, the increase is not too large, and the annualized return rate is not high.

For example, in news reports, it is believed that yesterday's gold price was a sharp rise, with an increase of 1.56%. However, such an increase is not too large compared to stocks and funds. Large international capitals invest in gold, often using leveraged methods. Through the leveraged funds, a 0.5% rise and fall can be magnified by dozens or even hundreds of times the profit, which ordinary investors cannot do.

Moreover, ordinary investors can only look at the rise in gold, but now gold is in a downward channel. It is difficult for us to fight against the large capital's bearish behavior. They can also make a lot of money by looking down on gold, and the money they earn is the funds added by ordinary retail investors.

04, Should the fixed investment stop?Now everyone is saying that the Federal Reserve will raise interest rates, and there is a possibility of multiple rate hikes. In the case of rate hikes, the first to be affected are technology stocks, such as the trend of the Nasdaq, which will then further drag down the U.S. stock market, and the other two major stock indexes will also decline as a result.

If the U.S. stock market ends its bull market that has lasted for more than a decade and begins to show a significant decline, it will inevitably affect the A-share market, and the funds held by most people will also decline accordingly.

Therefore, many friends believe that in this situation, they should first stop the fixed investment in funds to avoid this wave of decline and then continue after it.

The above statement seems very reasonable, but there are deviations in every link of the argument.

First, it is not very certain whether the United States will raise interest rates. Even if the rate hike begins, it is also uncertain whether it can complete an interest rate hike cycle. Once the Federal Reserve finds that the economic recovery is not ideal and there are signs of economic downturn, it may have to terminate the rate hike in advance, just like the rate hike from 2015 to 2018. In the last round of rate hikes, the impact on the stock market was not significant, and the reason was that the rate hike had not returned to the previous high position and was interrupted halfway.

Second, whether the U.S. stock market will enter a bear market if it declines is also very uncertain. In the past few years, the U.S. stock market has experienced declines of 15% to 20%. If such a decline is defined as a bear market, it is also a very short bear market. Soon after, the U.S. stock market rose again and quickly filled the gap, which led to the bull market that has lasted for more than a decade.

Third, will the decline of the U.S. stock market definitely drag down the A-share market? This is also a misunderstanding. The economic situations of the two countries are slightly different now, and the monetary policies adopted are also obviously different. The United States is contracting liquidity, but China is appropriately relaxing liquidity. Their key goal is to control inflation, while our key goal is to stabilize growth. If the monetary growth rate returns to above 10% in the next period, it is not ruled out that the situation in 2020 will reappear in 2022. At that time, everyone will be pleasantly surprised to find that most of the funds have achieved good growth.

The most important point is that fixed investment should never be stopped. Fixed investment in funds is not an investment made after judging the market, but on the contrary, it is an investment made without judging the rise and fall of the market. If you are willing to continuously buy funds every month when you expect the market to rise or when the market is rising, why should you stop the fixed investment in funds when the market may decline in the future and you have the opportunity to buy cheaper and cheaper?