Mythbusting Fed Fears

You're receiving this email as part of your subscription to Lou Basenese’s Trend Trader Daily [Unsubscribe](. [Trend Trader Daily] Mythbusting Fed Fears Thursday, March 17, 2022 Finally! Yesterday, the Federal Reserve decided to hike interest rates for the first time in three years and 71 days (yes, I was counting). The world’s most powerful bank also telegraphed six more rate hikes in the year ahead, which represents a few more hikes than previous guidance suggested. And guess what? Stocks shocked (almost) everyone by surging on the news. The Dow finished up 1.55%, the S&P up 2.24%, and the Nasdaq up 3.77%. That’s the funny thing about investors and the Fed. Everyone falsely believes that a Hawkish central bank is universally bad for the stock market. As always, though, let’s forget consensus thinking and go to the data instead! > ADVERTISEMENT < New Cash Law Will Be Disaster for Savers New law has expert warning seniors and retirees to beware. There's a darker truth behind this political event... Just the Facts, Ma’am! Data doesn’t lie. And no matter how we slice and dice it when it comes to stocks and interest rate hikes, the takeaways are bullish. Consider… In the immediate term, there have been a dozen other “Fed days” when the S&P 500 rose at least 2%. In case you were wondering, yesterday’s 2.24% gain was the ninth-best Fed Day since 1994. But I digress. Getting back to the immediate-term reaction to rate hikes, the S&P 500 tends to give back some of the gains the following day (average decline of 0.82%). But the following week, the index has finished higher the majority of the time (8 out of 12 times). In the intermediate term, a fresh analysis by LPL Financial Research is equally compelling. Following the first rate hike over the last eight tightening cycles, the S&P 500 averaged gains over the next three, six and 12 months, of 0.7%, 6.1% and 9.2%, respectively. Remember, those are the averages. If we look at the individual returns for 12 months after the first rate hikes, stocks have been as much as 21% and 40% higher. (Bring it on!) It’s also worth noting that there was only one instance when stocks declined in the 12 months after the first Fed hike. Over extended Fed tightening cycles, the data bears out similarly bullish conclusions. More specifically, since WWII, the S&P 500 has delivered an average gain of 11.1% over the course of 11 full cycles, defined as the period between the first and last rate hike. The average length of those tightening cycles was 838 days, or just over two years. As LPL Financial Chief Market Strategist Ryan Detrick said, “Investors need to remember that Fed rate hikes usually happen near the middle of the economic cycle, with potentially years left of gains in stocks and the economy.” Tell ’em, Ryan! Now, for those who are skeptical that stocks can absorb six rate hikes in a single year, think again! If the Fed does indeed follow through with that guidance, it’s happened before. Most recently, in 2005, when the Fed hiked 8 times. And through the runaway inflation decade of the 1970s, when there were five years during which the Fed hiked rates a dozen or more times. Bottom line: Despite popular belief, interest rate hikes historically have not been bearish for stocks. And I don’t expect this time will be any different. If you expect otherwise, be careful! You know what they say about predicting “it'll be different this time.” It seldom is.   FOR TREND TRADER PRO READERS ONLY > [LEARN MORE]( < Ahead of the tape… Lou Basenese Founder & Chief Investment Strategist   Copyright © Trend Trader Daily, All rights reserved. You signed up on []( Our mailing address is: Trend Trader Daily 301 S. Perimeter Park Dr. Suite 100 Nashville, Tennessee 37211 [Update Subscription Preferences]( | [Unsubscribe from this list]( RISK NOTICE: All investing comes with risk. That includes the investments teased in this letter. You should never invest more than you can afford to lose. Please use this research for the purpose that it's intended — as research only. You should consult a professional financial advisor before ever taking a position in any securities you see herein. SECURITY HOLDING NOTICE: Although we are never compensated from any companies for coverage, you should be aware that Trend Trader Daily, its authors, its owners, and its employees may purchase, sell, or hold long or short positions in securities of the companies mentioned in this communication. While authors might actively transact in the securities mentioned, they will always have a net position that is consistent with the position set forth in our research reports, letters and updates. DISCLAIMERS: The work included in this communication is based on diverse sources including SEC filings, current events, interviews, corporate press releases, and information published on funding platforms, but the views we express and the conclusions we reach are our own. As such, this content may contain errors, and any investments described in this content should be made only after reviewing the filings and/or financial statements of the company, and only after consulting with your investment advisor. Actual results may differ significantly from the results described herein. Furthermore, nothing published by Trend Trader Daily, Inc should be considered personalized financial advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. Trend Trader Daily is an independent provider of education, information and research on publicly traded companies, and as such, it accepts no direct or indirect compensation from any companies or third parties mentioned in any of our letters, reports or updates.