Tags: stocks | Fed | rate | Carlson

Money Manager Ben Carlson: Stocks Almost Always Rise During Periods of Fed Rate Hikes

By    |   Tuesday, 09 December 2014 12:28 PM

Many stock market participants fear that once the Federal Reserve starts raising interest rates — economists' consensus is that the hikes will begin around mid-2015 — the 5 ½-year-old bull market will end.

But research from money manager Ben Carlson might quell some of that concern. He found that in 12 of the last 14 periods that saw sustained rate hikes, the S&P 500 index actually gained, according to a post on his website, A Wealth of Common Sense. The average return was a stellar 20 percent, compared with 2 percent for bonds.

The 14 periods go back to 1958.

Carlson doesn't address the issue of why stocks rise when the Fed tightens, but one can hazard a guess. The Fed raises rates to prevent inflation from getting out of control.

And rising inflation often stems from strong economic growth. Strong economic growth, of course, provides firm support for stocks.

Interestingly enough, Carlson found that stocks don't fare quite as well after the Fed finishes its rate increases. The S&P 500 returned 7.6 percent on average in the year following the tightening of the 14 periods and 9.6 percent in the three years following rate increases.

That seems reasonable too, as tightening often lessens economic growth.

"The markets don't have to react a certain way just because they did so in the past. But so many investors are absolutely certain stocks and bonds are both going to get killed once the Fed finally does decide to raise rates," he wrote. "The historical record doesn’t clearly back up that argument."

Meanwhile, following the strong November jobs report last Friday, Chris Rupkey, chief financial economist at Bank of Tokyo Mitsubishi, said the Fed should accelerate its rate hike schedule.

"Our call is for a rate hike in March 2015, but our recommendation is for them to raise rates in December," he wrote in a commentary obtained by CNBC.

"The economy is better than they think. And by raising rates, the Fed tells the country and the world too, that the economy has fully recovered. A rate hike will boost the nation's confidence that the economy is heading in the right direction and the outlook is a solid one."

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
Finance
Many stock market participants fear that once the Federal Reserve starts raising interest rates — economists' consensus is that the hikes will begin around mid-2015 — the 5 ½-year-old bull market will end.
stocks, Fed, rate, Carlson
366
2014-28-09
Tuesday, 09 December 2014 12:28 PM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

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