The US Federal Reserve raised the federal funds rate by 0.25 percentage points on the 16th. It is the first time in three years and three months since December 2018.
According to a dot plot, an indicator of FOMC members prospects for future interest rates, the Fed expects rates to rise to 1.9% by the end of the year.
This suggests that interest rates can be raised by 0.25 percentage points each time during the remaining six FOMCs this year.
So, how did the New York stock market move in the current interest rate hike cycle?
Source: CFRA /Picture=CNBC Capture Historically, stocks rose even when the Fed raised rates in a row, according to CNBC. However, the share price growth did not meet the overall period average. Of course, the stock price has risen less than when interest rates were cut.
According to Sam Stovall, chief investment strategist at CFRA, six months after the first rate hike since 1946, the SP500 averaged just 1.3%. This is far below the average growth rate of the SP500 index of 5.5% six months after the first rate cut.
The phenomenon that stock market returns underperformed during the rate hike cycle compared to the rate cut cycle continued until 12 to 18 months after the first rate hike.
Its not surprising that stock market returns are below average in a tightening cycle to slow overheated economic growth and dampen inflationary pressures.
This is because raising interest rates can increase financing costs and negatively affect corporate investment. In particular, tech stocks may find it difficult to raise funds and their growth may be hampered.
If you look at past history, the New York stock market rose even when interest rates rose, but some say that this time it may be different. Although the inflation rate is the highest in 40 years, it is pointed out that economic growth may already be weak.
“Investors should be aware that this cycle of rate hikes can be very different from the past,” said Scott Roosterholtz, portfolio manager at Insight Investments. did.
“Rising inflation could allow the Fed to raise rates sooner than the market is expecting this year, but further growth shocks may cause the economy to need fewer rate hikes than we think,” he said.
