If there was a board that might have some history on this, it would be this board. I am not a frequent poster of any board. Most of the posts on this board and others are made by investors/traders who have way more experience than myself. I heard that when the FED announces the rate hike on Wednesday that the market will react in a bullish way due to the hike already being baked into the current market drop. Furthermore, this will not be the first time that this has happened. Is there any info out there to corroborate or deny this thinking?
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The stock market and the bond market are both strongly affected by interest rates. The stock market is affected by many other factors besides interest rates, especially by predicted profits.
The first rate hike will be Wednesday, but the Fed will almost certainly add rate hikes later – nobody knows how many yet. So a one-day bullish move (even if there is one) may not last. Usually, the stock market responds to the economy, which often goes into recession after several rate hikes. When the recession starts the market goes down. If it is in a bubble, it craters.
Here are the charts.
https://fred.stlouisfed.org/series/FEDFUNDS
https://www.macrotrends.net/2324/sp-500-historical-chart-dat…
We are currently in one of the most significant stock, bond and property bubbles in history.
Wendy
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Simplify. Ignore the Fed. Watch the World. Watch the Market.
The Captain
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The thought on Bloomberg and CNBC is for a quarter of a point Fed interest rate rise on Wednesday. This expected to be the first of four to five similar changes of a quarter point each in the rate.
OTFoolish
I have a nearly perfect record of guessing short term market moves incorrectly. That being said, I am still overweight cash because my stocks, bonds and real estate all appear to be expensive to me, and because I am a risk averse 66 year old retiree.
If I were younger I would be dollar cost averaging just like I did through crashes in 1987, 2000-2, 2008-9.
I am planning to take SS in a few months rather than wait 4 years because I think there is a reasonable possibility of a significant stock/bond crash this year and an opportunity to invest some of my accumulated cash plus SS.
But what do I know? My short term guesses are consistently wrong.
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But what do I know? My short term guesses are consistently wrong.
That’s why I’ve used more experienced investment professionals as backup.
First with Fidelity and then with RBC Wealth Management as Fidelity was great when I had the time and inclination to be more actively invovled in my portfolio and later with RBC when I decided to take a more protective track to maintain my income stream. Also factored into my investments decision has been the purchase of rental property which has required more hands on maintenance time.
If you are not comfortable with your own decisions use a investment advisor who is also a licensed fiduciary and you can verify this cerification online at FiduciaryRegistary.com .
OTFoolish
That’s why I’ve used more experienced investment professionals as backup.
All they really do is to charge for their guesses. LOL
Seriously, investment professionals need to protect your assets with ‘safe’ securities which, by their very nature, tend to underperform markets (risk/reward). I prefer higher risk stocks backed by enough cash reserves to be able to weather downdrafts like the current one.
Inflation, end of QE, higher rates, Putin = quadruple black swans. Investment professionals are no better at getting them right than you or me.
The Captain
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I heard that when the FED announces the rate hike on Wednesday that the market will react in a bullish way due to the hike already being baked into the current market drop. Furthermore, this will not be the first time that this has happened. Is there any info out there to corroborate or deny this thinking?
The Fed did a series of quarter-point rate hikes beginning in December 2015.
2015 December
2016 December
2017 March
2017 June
2017 December
2018 March
2018 June
2018 September
2018 December
You can pull up a chart of the S&P to look at the details, but over those three years SPY was up 27%.
DB2
The way prices will move depends how the market is positioned, and what the surprise is.
In January elements of the market, for example the components of ARKK, were still in bubble territory, so the talk of Fed tightening brought it down. Maybe now it’s fairly valued … maybe many loss making companies are still priced too high … or maybe the short interest is likely to propel a squeeze …
You can’t just say … oh in 1999 when they hiked, prices still went up so we’ll do the same this time … or 2000 when they hiked, prices came down so we’ll do the same this time.
Here’s one view -
https://discussion.fool.com/is-it-all-dry-powder-or-is-something…
Many of us follow Mungofitch and his quantative analyses, he’s saying that the tech companies in QQQE are within 10% of fair value (still a tad expensive).
Here’s another view
https://www.gmo.com/asia/research-library/let-the-wild-rumpu…
This chap reckons markets will retrace to where they came from, I think it implies S+P 500 to about 3,600 or -15% from here and the Nasdaq 100 companies more. But Grantham has a reputation as a bit of a permabear, unlikely he participated in the recent multi year rally where others made a lot of money. But that doesn’t mean he’s definitely wrong now.
And while Powell has promised the Fed will deliver a 0.25% rate hike on Wednesday, what will his rhetoric be? Preparing us for 0.5% next time? bearish. Already running off assets from the huge portfolio built up under QE? bearish. Nothing special? maybe a tad bullish.
However the stock market likes liquidity, likes people to have too much cash and not know anything better to do with it than buy stocks, the old There Is No Alternative. So running down the balance sheet will do the opposite, cause people to sell stocks.
Raising interest rates similar.
The alternative future, maybe after a few hikes is that this business of getting inflation down causes a growth slowdown, or a recession … indeed it may be the Fed’s mandate to cause this because low inflation is one of their main targets. Stock markets really don’t like recessions because profits evaporate.
My guess is we get the worst of all possible worlds for stocks, so I’m essentially with Grantham … rising interest rates and recession, stocks were priced for perfection on Jan 3 and now have quite a bit further to fall as the year 2022 progresses …
Talking my book
Plunger.
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Plunger,
Yours is an interesting take on the market and for an opposing view check out the new Fed survey. I believe the real answer will fall somewhere in between with short term market reactions to any rate hikes but long term the trend will still be upward based on the Fed getting inflation under control and Europe rebuilding the Ukraine.
OTFoolish
Plunger,
In my studies on FED policy making surprise is generally the last thing the FED creates. The reason, the highest impact of FED policy is when managements can make decisions based on interest rates. FED decisions are broadcast well in advance for impact.
The markets are driven temporarily by news.
In the US and much of the world USD EUR and a few other currency decisions have the major power over all markets and economies.
I am expecting a slight reduction in inflation for March. Less of a reduction than I had expected, but from here the middle of the month till the end of the month the beginnings of a taming of inflation. My goal had been to see 5% but the Russia fuel shock put that off a few weeks. I think we will float somewhere in the 6% area for inflation as reported in April.
Stock markets really don’t like recessions because profits evaporate.
P,
I am not as bearish yet, but this is where we are going. Have a rec for a great post.
We just do not know shallow recession or deep recession.
That’s why I’ve used more experienced investment professionals as backup.
All they really do is to charge for their guesses. LOL
…
Investment professionals are no better at getting them right than you or me.
LOL! Yes, but when “experienced investment professionals” get it wrong they have really, really good excuses for losing your money.
Desert (CVX, XOM, T, BNS, BKH, ED, ATGFF, NI, NWN, TRP, ENB, WRE, WGL, XEL, DUK, SO & KO) Dave
PS
Buy and hold, baby, buy and hold!
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The Fed did a series of quarter-point rate hikes beginning in December 2015.
2015 December
2016 December
2017 March
2017 June
2017 December
2018 March
2018 June
2018 September
2018 December
This time they are talking about 7 rate hikes THIS YEAR.
2022 March
2022 May
2022 June
2022 July
2022 September
2022 November
2022 December
And not only are they talking about it, but the bond market is indeed pricing it in. I suspect that rather than blindly raising rates on some sort of schedule, they will instead react to world events as appropriate. And there won’t be any lack of “excuses” to put some of these rate hikes on hold.
Is there any info out there to corroborate or deny this thinking?
It has to do with the removal of uncertainty. Prior to the announcement, there were some talking heads that were forecasting a half point and even a full point increase (I actually had a client who frequents all the wrong news sources that said she feared a full percentage point increase).
When the increase turned out to be LESS than what some had predicted, the market responded positively.
My favorite story of this phenomena was the announcement of the the BP oil spill settlement:
Oct 5, 2015
https://www.theverge.com/2015/10/5/9454393/bp-oil-spill-reco…
BP PLC — the company responsible for the 2010 Deepwater Horizon oil spill — will pay a record $20.8 billion to the US government to cover damages caused by the disaster, the Department of Justice announced Monday.
BP stock price closed up roughly 10% that day; not because of good news, but because the removal of uncertainty around how much worse it could have been.
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I suspect that rather than blindly raising rates on some sort of schedule, they will instead react to world events as appropriate. And there won’t be any lack of “excuses” to put some of these rate hikes on hold.
At the moment, the Fed heads are talking about, and the market almost fully pricing … two back to back 50 bp hikes May and June plus more 25 bps moves after …
If the stockmarket holds up, these may well happen.
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