Can the Fed Cause a Stock Market Correction?

With the U.S. Federal Reserve set to hike rates again this month, investors are concerned the Fed could cause a stock market correction...

That's especially true after stocks were ravaged in February, as the S&P 500 briefly slid into correction territory, and the Dow saw a 1,000-point drop in just one day (Feb. 8).

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While we aren't predicting another market correction, the Fed's actions do affect investors' sentiment and the dollar's liquidity.

Today, we'll show you exactly how the Fed could cause a stock market correction, plus what you can do to Fed-proof your portfolio...

How Fed Policies Could Cause a Stock Market Correction

The Fed is hiking interest rates, and that's a potential stock market correction signal, since the Fed's policies have helped inflate stock prices.

The Fed lowers interest rates to stimulate the economy during periods of slow growth. The idea is that easing monetary policy makes borrowing cheaper, so businesses use the low interest rate environment to borrow and grow their businesses.

That's why the Fed lowered interest rates during the Great Recession of 2008. Before the financial collapse, interest rates stood at more than 5% in 2007. By 2008, they'd been slashed to just 0.25%, the lowest ever.

"Trouble Is Brewing": According to Bloomberg's latest report, America could be heading for an economic disaster that would rival the Great Recession. Billionaire Ray Dalio's hedge fund, Bridgewater Associates, has made a $22 billion bet against the market. And Citibank calls our present situation "eerily reminiscent of the mortgage crisis." To see why we believe some of the richest players in the world are preparing for a market collapse, click here.

The low interest rates worked, at least in part. Companies began borrowing money, but they were using some of the money to buy back shares of their own stock. This is a way for companies to boost the share price of their stock and reward shareholders.

Between 2009 and 2016, public companies borrowed $1.9 trillion in cheap money, but it helped finance $2.1 trillion of share buybacks.

These buybacks are part of the fuel behind the stock market's 250% surge since March 2009. And while share prices skyrocketed, so did valuations.

The Shiller P/E ratio - one of the best measures of stock valuations - has jumped to 33.4, double its historical average.

The only time valuations have risen higher than they are now was in 2000, just before the dot-com bubble collapsed. In fact, they are even higher than they were in 1929, before Black Tuesday.

Now, we don't expect a repeat of those crashes, but it's a reason investors are paying attention to what the Fed's doing.

If low rates help stock markets climb, increasing rates make borrowing money more expensive, leading to less money going into the stock market. With valuations at sky-high levels, stocks could pull back without the Fed's help...

And since December 2015, the Fed has hiked rates five times, pushing rates above 1% in 2017 for the first time since 2008. Plus, the Fed itself is predicting three more rate hikes in 2018, which will push rates above 2% for the first time since 2008.

That has market watchers concerned the Fed will cause a stock market correction in 2018, as rising interest rates pull liquidity out of the market.

But you can protect yourself without sacrificing profit potential.

Check out two of our "Fed-proof" stocks to protect your money and profit, even as other stocks tumble...

2 Stocks to Protect Your Money from the Fed

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We're recommending two stocks that have a track record of performing even as the broader market declines. Both of these stocks brought positive returns during the tech crash in 2000, even as the overall markets fell more than 10%.

While there's no guarantee these stocks will be immune to the next correction or pullback, they are some of the best companies in the most in-demand industries.

Money Morning Chief Investment Strategist Keith Fitz-Gerald thinks investors should hold on to stocks in the "Unstoppable Trends." The trick to making huge profits is to find "must-have" companies that fall into these six Unstoppable Trends: medicine, technology, demographics, scarcity and allocation, energy, and war, terrorism, and ugliness (also known as "defense"). The Unstoppable Trends are backed by trillions of dollars that Washington cannot derail, the Fed cannot meddle with, and Wall Street cannot hijack.

By owning well-run companies in these Unstoppable Trends, you'll own resilient stocks that will charge out of any market downturn, leaving behind anyone who sold off stocks for other assets. And if the market doesn't correct, these stocks are still going up.

That's why we're bringing you two of our favorite stocks from the Unstoppable Trends.

Raytheon Co. (NYSE: RTN) is our play for the trend of war, terrorism, and ugliness.

Raytheon is a leader in the defense industry, with billions in contracts with the U.S. government and other countries across the world. That means if the market falls, Raytheon is going to continue to excel over the long term.

Raytheon has billion-dollar contracts with the U.S. government, but it also has a diverse customer base. International customers make up just under half of its business. That means even if a few countries cut defense spending during an economic downturn, RTN still has plenty of other customers to help it weather the storm.

But RTN's real allure as an Unstoppable Trend pick is the fact that war is a reality of the world. For instance, as tensions rise abroad, the United States is more likely to need more weapons and equipment. When the United States launched a missile strike on a Syrian airbase on April 7, Raytheon's stock jumped more than 2%, since its missiles were used.

RTN currently trades at $210.81 a share and pays a 1.51% dividend yield.

Becton, Dickinson and Co. (NYSE: BDX) is an example of a play in the Unstoppable Trend of demographics.

BDX is a healthcare company specializing in one-time-use medical products utilized in hospitals and long-term care facilities. That means as populations age, more people will need this type of medical care, and BDX will be in even higher demand. People will need healthcare whether the market falls or not.

But BDX is also an exceptionally well-managed company. It has a 10.54% profit margin and maintains a 1.58% dividend yield, even after a $12.2 billion takeover of CareFusion two years ago. That means the company's capital management is sustainable and will easily survive a market downturn. And that's good news for its shareholders during a stock market crash.

BDX trades at $225.08 and pays a 1.33% dividend yield.

And while you're protecting yourself from a market correction, there might be an even greater danger lurking in the distance...

The Scary Details the Fed Didn't Reveal

On Feb. 27, Fed Chair Jerome Powell revealed the Fed would raise interest rates.

What he didn't say is that those rate hikes could send the U.S. economy into a tailspin... and very well might lead to the greatest economic collapse since the Great Depression.

If you are not willing to lose everything in another market crash, then click here.

Because it's possible to protect yourself from the coming economic disaster - but you have to act now.

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