The US market has been riding a bullish trend for a little more than a month at this point. However, it seems as though the bull market is coming to an end, and its happening fast. Today, we'll talk about why the bull market is falling apart, how long the declines are likely to last and how binary options traders can turn the fall in the market into a climbing bank account!
Why US Stocks Are Falling Apart
The reason for the declines we're seeing lately revolves around the Federal Reserve's interest rate. Currently, the rate is 0.25%, the lowest we've seen in history. The drop to this low rate happened several years ago during the worst of the 2008 and 2009 worldwide economic crisis. Ultimately, the Federal Reserve reduced the rate so that consumers would spend less on interest, leaving more money available spending which would stimulate the US economy. This low rate fueled the bull market for several years as low rates mean higher corporate earnings. However, when the rate was reduced to this record low, the Fed made it clear that the low rate wouldn't last forever. When the US economy became strong enough to withstand an increase in the interest rate, the Fed would work to move the rate higher.
Late last year, the Federal Reserve announced that they believed that the time to raise its interest rate was coming soon. In fact, the Fed announced that it would be likely to raise the rate by the end of 2015. Throughout the year, economic data delayed the rate hike. However, the US jobs report for the month of October showed promising signs for the US economy, meaning that the Fed is likely to raise its rate in December. When the interest rate is increased, consumers will spend more on interest, leaving less money available for spending elsewhere and causing declining corporate earnings. So essentially, the declines we're seeing in the market right now are the result of investors preparing for the higher risk conditions to come.
How Long Are Declines Likely To Last?
In my opinion, it's time to prepare for long term declines. In fact, I'm expecting for the declines to last at least for 6 months and possibly longer. The reality is that right now investors are preparing for the higher risk market conditions that will come as the result of a rate hike. We are likely to continue seeing declines at the current pace we're seeing now. When the Fed does increase its rate in December, we can expect for the rate at which stocks are declining to speed up for a short period of time, likely a week or two. This will be followed by slow and steady declines for several months. History tells us that when the Federal Reserve increases its interest rate, we are likely to see declines in the market for a period of between four and six months. However, the declines in this particular case could last longer because the Fed plans on several incremental increases over a period of time. Each one will likely lead to declines. Read more financial news by TheBinaryAdvisor.
How Binary Options Traders Can Take Advantage Of The Trends
Considering the fact that we know US stocks are likely to continue falling, binary options traders have several opportunities here. Trading the Dow Jones, S&P 500, NASDAQ or just about any US stock would likely lead to profits. To ride the trends to profits, simply look for put option opportunities in any of the assets mentioned above. Also, while stocks decline, Gold and Silver are likely to get a leg up. So, binary options traders will likely profit from call options on these assets.
[Image Courtesy of The Telegraph]