Rate hikes and stock market returns, from Zubin Al Genubi
From Marketwatch.
As it turns out, during so-called rate-hike cycles, which we seem set to enter into as early as March, the market tends to perform strongly, not poorly.
In fact, during a Fed rate-hike cycle the average return for the Dow Jones Industrial Average DJIA is nearly 55%, that of the S&P 500 SPX is a gain of 62.9% and the Nasdaq Composite COMP has averaged a positive return of 102.7%, according to Dow Jones, using data going back to 1989 (see attached table). Fed interest rate cuts, perhaps unsurprisingly, also yield strong gains, with the Dow up 23%, the S&P 500 gaining 21% and the Nasdaq rising 32%, on average during a Fed rate hike cycle.
Penny Brown wonders:
Very surprising. I am wondering why there is a mantra: "don't fight the fed." And "three hikes and a stumble."
Vic adds:
not mentioned is that the average fed rate increase cycle lasts 5 years. there have only been 13 of them since the fed was founded in 1910. usually these is a run of 15 increases once they turn from red to black.
i believe that the fed will not raise until the S&P is much stronger. a very nice close today (18 Jan.)
Nils Poertner comments:
the more talk about rising rates (and neg impact on stocks) the better it is for stocks. to a point of course.
everything is taking to the extreme these days. said to my cousin "eating apples is good for health" - and he replied "eating 10 apples isn't." of course not, but for now it seems so wrt rates.
Paolo Pezzutti writes:
Over the next few days option expiration this month can be an issue for stocks in terms of volatility. Not rising rates in my humble view.
Jeffrey Hirsch agrees:
Performance during January’s option expiration week
Big Al writes:
The Fed has never been sitting on a balance sheet like this, along with the other major CB's. Plus, the aggregate amount of debt is quite high after all these years of ZIRP. This will not be a "normal" rate-hiking cycle.