Investors continue to quibble over when the Fed will stop raising rates. After the decision not to raise rates on Wednesday, most would agree that they're either done or nearing the final increase.
But very few agree about what happens next.
Just last week, I shared an article discussing how stocks perform when rates fall. In it, I showed that stocks tend to sputter and wobble during falling rate regimes.
Today's historical study will take that thought a step further, asking two burning questions:
During Fed tightening cycles, what is the average amount of time it takes to go from the last hike to the first cut?
How do stocks perform in the 3-month to 6-month periods after the final hike?
If you're considering bailing on stocks as the Fed's hiking cycle ends, you'll want to see the results.
It's not Nvidia, Meta Platforms, Alphabet, or Amazon. But thanks to a recent major deal, an under-the-radar stock could become the No. 1 winner of the 2023 AI boom. "This company just teamed up with one of the biggest power players in the AI industry... yet you can still buy it for just one-twelfth the price of Nvidia – the time to buy is NOW," says Marc Chaikin.
For our first study, we're going back to 1957. Over the past 65 years, there've been 19 periods when the Fed ended rate hikes and began cutting.
The Fed has only waited an average of 4.2 months to go from the last hike to the first cut. History shows that it doesn't take long for restrictive policy to shift to easing policy:
But you'll notice that the more recent data shows a different story.
Since the 1990s, we've experienced longer stretches between the final hike and first cuts, increasing the average wait time to roughly 10 months.
Two major episodes were the Global Financial Crisis in 1997 at 15 months and the bursting of the Tech Bubble in 2001 at eight months.
The recent mantra of rates staying higher for longer actually would be consistent with recent history.
Now that we've solved the first question, let's now turn our attention to the more important question.
No, it's NOT ChatGPT... (It's not Microsoft, Google, NVIDIA, or any of the other big players you've likely heard about either!) It's a tiny sub-$5 stock!
Turns out, stocks do incredibly well in the period after the final rate hike is tallied.
Looking back to 1980, the S&P 500 boasts strong gains in the 10 final hike events:
3 months later, stocks gain 4.2%
6 months later, stocks lift 8.2%
12 months later, they surge 15.7%
Those returns alone should cause you to celebrate. BUT it gets better…
When you zero in on these events since 1989, animal spirits emerge!
Since 1989, the average gain for the S&P 500 three months later is 8.7%.
Out to six months, you're looking at a 13.7% lift.
Hold for 12 months and it's a stunning 20.3% JUICIER:
Either way you slice it, history points to favorable market prices once the final hike is in.
This is why it's so important to have data on our side when assessing market events. There is an awful lot of media noise about rate hikes, rate cuts, and what to expect from the market next.
Data cuts through the media noise and offers a solid playbook.
Now you're equipped!
Lastly, if you're searching for great stock ideas backed by data, consider signing up for Quantum Edge Pro.
Analyst Jason Bodner utilizes cutting edge data revealing the best fundamentally sound stocks under Big Money accumulation.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
Post a Comment
Post a Comment