Capital Markets: Observations & Insights

Fed Tightening Unlikely to Derail Equities Yet ​ Fundamentals

• The stock market has actually historically risen with the Federal Funds rate • Only after rates have stopped rising are equities likely to have peaked

• With the Fed still trying to normalize rates, equities may have room to run

Fed Not Done, So Stocks Not Done? (Current Hiking Period)

Stock Market Declines After Peak in Fed Funds (Average of ’99/’00 & ’04/’05 Periods)

Cumulative Hike

S&P 500

Cumulative Hike

S&P 500

2.5

114

2.5

150

112

2.0

Forecasted

140

2.0

110

S&P 500 (Indexed to 100)

S&P 500 (Indexed to 100)

108

130

1.5

1.5

106

120

1.0

104

1.0

110

102

Cumulative Rate Hike (Percentage Points)

0.5

Cumulative Rate Hike (Percentage Points)

0.5

100

100

0.0

98

0.0

90

0

2

4

6

8

10

12

14

16

18

0

5

10

15

20

25

30

35

Months Since First Hike

Months Since First Hike

Source: FactSet. Estimated future Fed rate hikes based on “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents,” December 2017.

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