Yellen Rate Rise Talk Just Noise to Strategist Seeing Stock Gain

Tuesday, 19 Aug 2014 07:12 AM

 

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink
Andrew Garthwaite has a message for stock investors unnerved by the prospect of the first Federal Reserve interest-rate increase since 2006: Don’t panic.

As they bet Janet Yellen’s Fed will raise rates around mid-2015, Garthwaite, London-based global equity strategist at Credit Suisse Group AG, and his team reviewed the fallout from Fed tightening cycles as far back as 1977.

They found that equities have tended to hold gains until almost the eve of the initial increase and then extend their advance through much of the cycle after a brief dip.

The Standard & Poor’s 500 Index peaked no earlier than four months prior to the first move up in rates; by the time policy makers acted, stocks had only fallen an average 3 percent from their peak.

What’s more — markets tended to recover, gaining about 4 percent in the six months following the first increase. Exclude the rate hikes that began in 1977 and the S&P 500 Index rose at least 10 percent within 18 months of the first shift.

“While rate rises have historically led to greater volatility in equity markets, they have not marked the end of equity bull markets,” the strategists said in an Aug. 13 report.

Can history repeat this time? Garthwaite says if the Fed boosts its benchmark around the middle of next year, then the market should keep climbing through 2015.

It won’t be straight up. Garthwaite’s central case is a 5 percent drop in markets around the end of this year after the central bank ends its quantitative-easing program and a 5 percent to 10 percent decline after the Fed raises rates.

He predicts the S&P 500 will end the year at 2,020 — suggesting a 9 percent gain for 2014, making him more bullish than the majority of analysts surveyed by Bloomberg News.

“We think equities will be meaningfully higher from current levels before the correction starts and that any lost ground will be recovered thereafter,” the Credit Suisse analysts said.


© Copyright 2014 Bloomberg News. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
You May Also Like

G-20: Uneven Global Economic Growth Isn't Creating Enough Jobs

Sunday, 21 Sep 2014 10:27 AM

Finance chiefs from the 20 largest economies said on Sunday they are close to reaching their goal of boosting world GDP  . . .

Relief Over Scotland Gives Way to Global 'Great Stagnation' Worries

Sunday, 21 Sep 2014 09:46 AM

Scotland's rejection of independence and a lack of any fireworks at a Fed meeting last week have calmed investors enough . . .

Treasury's Lew: US Completing Work on Limiting Inversions Benefit

Sunday, 21 Sep 2014 09:39 AM

U.S. Treasury Secretary Jacob J. Lew said the department is finishing work to limit the benefits companies gain from mov . . .

Most Commented
Top Stories

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

 
NEWSMAX.COM
America's News Page
©  Newsmax Media, Inc.
All Rights Reserved