The lowest US unemployment rate in seven years has sparked speculation that the Federal Reserve will raise interest rates sooner than expected, giving traders a convenient excuse to sell dividend-paying stocks.
Arguments can be made for and against the Fed raising interest rates.
On one hand, the federal funds rate continues to hover near zero, and the central bank has long cited 5.5 percent unemployment as a prerequisite for gradually normalizing monetary policy after a period of extraordinary accommodations.
On the other hand, inflationary pressure remains negligible. Hiking interest rates would also propel the Uncle Buck even higher, undermining the nascent revival of US manufacturing and the finances of many developing-world economies.
Misjudging which course of action the Federal Reserve will take won’t ruin your portfolio. However, rashly selling your dividend-paying stocks doesn’t make a lot of sense; future returns for utility stocks, master limited partnerships and telecom stocks won’t depend on the US central bank’s next move.