Fed Hikes Rates By 75 Basis Points—Here’s Why It’s Not All Doom And Gloom For Investors

The Federal Reserve raised interest rates for the third time in a row on Wednesday, raising borrowing costs to their highest level since the Great Recession.

Bond yields continued to surge higher in anticipation of more rate hikes after stocks tanked in volatile trading. The yield on the 2-year Treasury note reached 4% on Wednesday for the first time since 2007, while the 10-year Treasury hit 3.6% earlier this week.

It all means something to investors. It's not much if they're thinking about a long term view. While the long term odds are more favorable in terms of stocks coming down to better valuations, the near term odds favor high-risk as the Fed keeps raising rates, says James Stack, president of InvesTech Research and Stack.

The terminal rate is the point at which central bank officials think they can stop hiking interest rates. By the end of this year, the central bank predicts the federal funds rate will be 4.6%. That's up from its previous prediction.

The ceiling is more important than the pace at the moment because the market wants to know where the Fed is going.

The good news for investors is that they can weather the short-term fluctuations. The S&P 500 has risen an average of 16% in the year after a mid-term election.

John Lynch, chief investment officer for Comerica Wealth Management, encourages investors to maintain targeted allocations despite the market's struggles.

Lynch argues that investors should still remember the importance of long-term targeted allocations even though he predicts that stocks will retest their June low point. He says that markets are often resilient for investors.

As the elections loom in November, investors can expect a volatile period for markets. The average S&P 500 return in the second year of a presidential cycle is 4.9%, with an average decline of 1.8% and 0.5% in the second and third quarter. The four-year presidential cycle has a higher market volatility than any other quarter.

Stack's advice for investors is to be patient, hold positions and focus on sectors that have less downside risk in a downturn. There will be another side to this valley, but it would be foolish to ignore the near-term risk of tighter Fed policy on both the economy and the over inflated housing market. Keeping powder dry for future opportunities is what investors should keep in mind.