Ask Matt: The Fed is stalled. What's next?
Q: The Fed is stalled. What's next?
A: The Federal Reserve reacted to recent market turmoil and left short-term interest rates untouched. The danger of higher rates is off the table for now - but still a risk for investors to deal with.
In the short term, expect many of the stocks hurt ahead of the meeting to behave better.
The clearest example are real-estate investment trusts. These companies, which own mainly commercial real-estate, attract investors with market-beating dividends. Higher rates were a danger to these stocks as they would make their dividends relatively less attractive. Shares of the Vanguard Real Estate Investment Trust exchange-traded fund gained 1.1% Thursday on investors' relief.
Bonds, too, were strong Thursday as the risk of a rate hike is kicked down the road. It's a reminder bonds and REITs continue to be solid investments that should be part of most portfolios.
But investors are right back where they were. The Fed signaled it still expects to take short-term rates up this year. Eventually, investors will start to handicap the odds of an increase.
Once interest rates do rise, history tells investors stocks in emerging markets, energy, consumer goods and utilities could be attractive. The bottom line: Stay diversified, especially during times of Fed movement.
Paste BN markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.