Tags: Brown | stocks | interest | rates

Ritholtz's Brown: 'US Stocks Surprisingly Resilient as Interest Rates Rise'

By    |   Thursday, 28 May 2015 10:00 AM

Now that Federal Reserve Chair Janet Yellen has said the Fed will likely raise interest rates later this year, what effect will rising rates have on your investment portfolio?

The history of interest-rate hikes offers us some guidance, says Joshua Brown, CEO of Ritholtz Wealth Management.

"This is because the predominant variable of the markets — human behavior — doesn't change very much from generation to generation, even if the environment around us does," he writes in Fortune.

Brown and Ritholtz Research Director Michael Batnick looked back at the eight rate-hike cycles since 1976. This is what they found:
  • "U.S. stocks: surprisingly resilient as interest rates rise;
  • "International stocks: the special ingredient that keeps performance on track;
  • "U.S. bonds: not nearly as bad as you think;
  • "Diversified portfolio: this is how you win."
In the eight periods, "there have been zero instances where this diversified portfolio has produced a negative return," Brown explains. "The worst compound annual growth rate for the diversified portfolio was 0.5 percent from February to October 1987.

The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008. And Peter Schiff, CEO of Euro Pacific Capital, doesn't see that changing, despite Yellen's comments last week.

"The real disconnect lies in the failure of the economy to grow, as most people assumed that it would, after the Fed's quantitative easing and zero interest rates had supposedly worked their magic," he writes in his weekly commentary.

"As long as these monetary policies persist, our economy will never return to the growth rates that would be considered healthy."

GDP expanded just 0.2 percent in the first quarter, and the Atlanta Fed's forecasting model puts growth at only 0.8 percent for the second quarter.

"I believe that the Fed wants us to think that the economy is strong, in the hopes that perception may one day soon become reality," Schiff says. "But I do not believe the Fed has any actual intention of delivering the rate increases that it may expect will damage our already weak economy."

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Now that Federal Reserve Chair Janet Yellen has said the Fed will likely raise interest rates later this year, what effect will rising rates have on your investment portfolio?
Brown, stocks, interest, rates
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2015-00-28
Thursday, 28 May 2015 10:00 AM
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