Long-time readers of this column know I rarely focus on day-to-day\nchanges in the stock market. Short-term price movements bear very little weight\non long-term outcomes. But the setup for this week\u2019s topic is best achieved by\nlooking back on market action from January 5, 2022.<\/p>\n\n\n\n
On that day, the Federal Reserve released minutes from their\nDecember 14-15th meeting, and long story short, market participants learned\nthat interest rates were going to move up higher and faster than previously\nexpected. Stocks sold off sharply on the news, with the Nasdaq posting its worst\nsingle-day loss since February 2021.<\/p>\n\n\n\n
Questions started to swirl about the impact rising interest\nrates would have on stocks. The consensus seemed to be that rising rates are\nproblematic \u2013 they would result\nin multiple compression over time, and in the short-term would deal a major blow\nto high valuation stocks, like high-flying \u2018growthy\u2019 tech names. The thinking\nwas that January 5th trading action was a sneak preview of how the market could\nrespond to interest rate increases in the future.1<\/sup><\/p>\n\n\n\n Does Rising Interest Rates Mean More Volatility is Around the Corner?<\/a><\/strong><\/p>\n\n\n\n While rising interest rates could mean more market\nvolatility, there are still ways you can protect your investments. <\/p>\n\n\n\n Inflation and volatility are two common factors that every investor faces, but history shows that the market eventually recovers. With so many unknowns surrounding the market, remember to think long-term and focus on key data that can help guide your financial decision-making! <\/p>\n\n\n\n To help you focus on factors that can protect your investments\nthrough market volatility, I am offering all readers a look into our just-released February 2022 Stock Market Outlook report.<\/strong>\nThis report will provide you with our forecasts along with additional factors to\nconsider:<\/p>\n\n\n\n If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0 Rising interest rates could certainly give way to higher volatility in\n2022. But history tells us that rising interest rates do not necessarily have\nto mean falling stocks \u2013 in fact, the opposite has been true throughout\nhistory: <\/p>\n\n\n\n Source: Federal\nReserve; Bloomberg<\/em><\/strong>3<\/sup><\/em><\/strong><\/p>\n\n\n\n Indeed, the conviction that rising interest rates will hurt\nstock returns is more of a theoretical talking point \u2013 not an idea supported by\ndata. Over the last 140 years, the correlation between the 10-year U.S.\nTreasury bond yield and the cyclically adjusted price-earnings ratio for U.S.\nstocks is -0.21. Meaning, rising interest rates may lead to multiple\ncompression some of the time, but not reliably.<\/p>\n\n\n\n Looking closely at the table above, readers will see that\nthe Federal Reserve has carried out 13 monetary tightening campaigns, featuring\nseveral rate hikes in each. The S&P 500 went up in all but two of them,\ndelivering a median gain of +14% (price return) while the Fed was actively\nraising rates. Rising rates do not necessarily mean falling stocks \u2013 in fact,\nthey rarely do. <\/p>\n\n\n\n The two exceptions in the table above were 1971 during which\nthe market declined by -2%, and 1972 to 1974 when the decline was much bigger.\nIn those years, however, the U.S. economy was mired in recession due to the oil\nembargo, so the reason for the S&P 500\u2019s decline arguably was because of\nmore than just higher interest rates. <\/p>\n\n\n\n There\u2019s a good explanation, in my view, for why stocks have\nhistorically done well when the Federal Reserve is actively raising the fed\nfunds rate. That is \u2013 the Fed is usually raising rates in response to a strong\neconomy! Indeed, monetary tightening is usually in an effort to tighten\nfinancial conditions and cool the economy, which is precisely what we are\nseeing today as the Fed seeks to temper demand and inflation. In 11 of the 13\nrate hike regimes listed in the table above, the Fed was doing just that, and\nstocks arguably went up every time because the economy kept growing. I think\nthat\u2019s what we\u2019ll see in 2022 as well.<\/p>\n\n\n\n Bottom Line for\nInvestors <\/strong> <\/p>\n\n\n\n I have written before that bull markets usually end on the\nFed\u2019s last rate hike, not their first one. We may eventually arrive at a place\nwhere bond yields are higher than equity yields, and\/or the yield curve is\ncompletely flat or inverted \u2013 meaning bonds are more attractive than stocks,\nand growth conditions will be challenging ahead. We\u2019re not there yet in the\ncurrent environment, and I do not see those conditions emerging in 2022. In the\nmeantime, historical data suggests we should embrace these early rate hikes \u2013\nnot fear them.<\/p>\n\n\n\n Knowing this, I recommend that investors focus on factors\nthat can protect their investments through market volatility. So, to help you\ndo this, I am offering all readers\nour Just-Released February 2022\nStock Market Outlook Report.<\/strong><\/p>\n\n\n\n You\u2019ll discover Zacks\u2019 view on:<\/p>\n\n\n\n If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! The idea that rising interest rates mean bad news for stocks is not historically accurate\u2014in fact, the opposite is generally the case.<\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-10143","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10143","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=10143"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10143\/revisions"}],"predecessor-version":[{"id":10207,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10143\/revisions\/10207"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=10143"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=10143"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=10143"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
IT’S FREE. Download the Just-Released February 2022 Stock Market Outlook<\/a>2<\/a><\/sup><\/strong><\/p>\n\n\n\n\n Fed Raising Rates<\/strong>\n <\/td> \n Change in Fed Funds Rate<\/strong>\n over the period<\/strong>\n <\/td> \n S&P 500 Index Price Change over the\n period<\/strong>\n <\/td><\/tr> \n July 1954 to October 1957\n <\/td> \n 2.7%\n <\/td> \n +33%\n <\/td><\/tr> \n May 1958 to November 1959\n <\/td> \n 3.4%\n <\/td> \n +32%\n <\/td><\/tr> \n July 1961 to November 1966\n <\/td> \n 4.6%\n <\/td> \n +21%\n <\/td><\/tr> \n May 1967 to September 1969\n <\/td> \n 5.2%\n <\/td> \n +5%\n <\/td><\/tr> \n March 1971 to September 1971\n <\/td> \n 1.8%\n <\/td> \n -2%\n <\/td><\/tr> \n February 1972 to July 1974\n <\/td> \n 9.6%\n <\/td> \n -26%\n <\/td><\/tr> \n January 1977 to July 1981\n <\/td> \n 14.4%\n <\/td> \n +28%\n <\/td><\/tr> \n February 1983 to August 1984\n <\/td> \n 3.0%\n <\/td> \n +13%\n <\/td><\/tr> \n March 1988 to March 1989\n <\/td> \n 3.3%\n <\/td> \n +14%\n <\/td><\/tr> \n December 1993 to April 1995\n <\/td> \n 3.1%\n <\/td> \n +10%\n <\/td><\/tr> \n January 1999 to June 2000\n <\/td> \n 1.9%\n <\/td> \n +14%\n <\/td><\/tr> \n June 2004 to July 2006\n <\/td> \n 4.2%\n <\/td> \n +12%\n <\/td><\/tr> \n November 2015 to January 2019\n <\/td> \n 2.3%\n <\/td> \n +30%\n <\/td><\/tr><\/tbody><\/table>\n\n\n\n
<\/p>\n","protected":false},"excerpt":{"rendered":"