The Dow Jones looked unstoppable throughout the past year, rising from less than 21,000 points to more than 26,600 at its peak in late January. But on February 1 that steady growth came to a screeching halt, when the markets dropped about 600 points.
But then, relief. By the end of the day on February 6, the market had recovered by nearly 600 points. And while the world breathed a collective sigh of relief, uncertainty remains. An hour and a half after the opening bell on Wednesday morning, the Dow Jones was up 250 points, but the volatility of the past several days had not been forgotten.
At this point, you might be thinking: I'm a small business owner, so why do I care?
It's a reasonable question. Most small businesses aren't traded publicly, and many aren't actively courting investors, so who cares if the market is cautious now? It's not like it was a real crash and people are going to stop spending their money, right?
That's true, for now -- this correction was long expected and doesn't appear to be reminiscent of the 2008 financial crisis. But the Dow Jones mini-crash highlights a coming change in the American economy that impacts nearly every business owner: A series of interest rate hikes are imminent.
Here's how that affects you.
Cheap money will become harder to come by.
That's right, the era of cheap money is officially ending. It all started under the watch of former Fed Chair Janet Yellen, when the Fed began cautiously raising rates from near-zero levels in December 2015.
Since then, the fed funds rate has grown to 1.5 percent after the Federal Open Market Committee (FOMC) hiked the rate (the fifth time it has done so since the crisis) in December 2017. While 1.5 percent might be much higher than post-recession levels, historically it's still nothing.
Before the crisis, the fed funds rate was hanging around five percent. That means borrowers have enjoyed capital on the cheap for an unprecedented amount of time.
And now all of that is coming to an end. The Fed has already ratcheted up the pace of interest rate hikes in the past, and Fed officials have suggested at least three or four rate hikes are on the horizon for 2018. That means the fed funds rate could potentially reach 2.5 percent by the end of the year.
But we've known all this, so why did investors get so touchy all of a sudden?
There are many reasons -- increased yields in the bond market, for example. A lot of concern has revolved around long-simmering fears that inflation is on the way and that will increase pressure on the Fed to hike rates further.
Moreover, the new Federal Reserve Chair Jerome Powell entered office on February 5, the day the market plummeted. Despite the rocky reception Powell immediately reaffirmed his intention to stay the course of gradually increasing interest rates.
Your best strategy is to act quickly (or get left behind).
For small business owners -- or really, anyone with debt on the books or who plans to take on new debt -- this means your strategy should remain the same: Refinance now if you need to and haven't already, and if you need to take out additional loans, do it immediately. You don't need to be a financial advisor to realize that higher interest rates mean borrowing money is about to get more expensive.
And while historically, money will remain cheap, by the end of the year the fed's fund rate could grow by a whole percentage point. That makes a difference when you're paying off debt, so it's wise not to wait on that growth capital you've been eyeing lately.
While the day-to-day market fluctuations are really only of import to traders and public companies -- that is unless a massive economic catastrophe occurs -- it's important to read the tea leaves to understand what investors are thinking about the larger economic situation. This time, it's plain as day: Rate hikes are coming, and everyone should be ready.
Adam C. Uzialko contributed to this article.