Tags: stocks | Federal Reserve | rate | interest

Stocks Historically Rise After Fed Rate Hikes, But Does History Matter?

By    |   Wednesday, 02 Jul 2014 12:42 PM

As economists continue to debate when the Federal Reserve will start raising interest rates — the consensus forecast is for the second half of 2015 — the question arises as to whether rate hikes will help or hurt stocks.

Equities have generally flourished after past tightenings by the Fed. Strategas Research Partners compiled data for the last six periods of rate increases, encompassing 1983 through 2004.

It found that stocks on average rose 4.4 percent in the six months prior to the tightening and 5.2 percent in the three months prior, according to USA Today.

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Dow Predicted Will Hit 60,000 — Buy These 4 Stocks Now


Stocks on average gained 3.7 percent in the three months after the rate hikes and 7.7 percent in the six months afterward.

"Initial Fed rate increases are usually the result of a strengthening economy and are, as such, dealt by investors with equanimity if not outright enthusiasm," Jason Trennert of Strategas wrote in a commentary obtained by USA Today.

"The bad news is that history may be totally irrelevant after a period in which short rates have remained so low for so long."

Investors should be prepared for “far more market volatility” when the Fed begins tightening this time around, he warned.

Meanwhile, Rick Golod, director of global investment strategies for Invesco, says the dollar may dictate where stocks head after the Fed acts.

"I believe the dollar could be a good indicator to watch as we approach the Fed's first rate hike," he wrote on his firm's website.

"Investors should also remember that when monetary policy calls for tightening interest rates it's typically a sign the economy is improving. A stronger economy is likely to bolster corporate earnings and potentially stock prices."

Editor’s Note: Dow Predicted Will Hit 60,000 — Buy These 4 Stocks Now

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As economists continue to debate when the Federal Reserve will start raising interest rates — the consensus forecast is for the second half of 2015 — the question arises as to whether rate hikes will help or hurt stocks.
stocks, Federal Reserve, rate, interest
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2014-42-02
Wednesday, 02 Jul 2014 12:42 PM
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