Interest rate hikes not always bad news for stock markets
Interest rate hikes not always bad news for stock markets
On Tuesday, stocks plummeted to their lowest level since June of 2020. Wall Street was rattled by hot inflation numbers that raised fears of even steeper interest rate hikes from the Federal Reserve.
So, you’d think higher rates are bad for the stock market. But that’s not always the case.
Think back to 2017. The Federal Reserve had been raising interest rates, steadily. And yet the S&P 500 was still up about 20% that year, according to Savita Subramanian at Bank of America. She said that kind of market reaction has been the norm.
“Going back to the ’80s, generally returns in the 12 months after the first rate hike have been positive.”
So when the Fed is just tweaking interest rates to keep inflation under control in a strong economy, it’s no big deal, said Larry Swedroe of Buckingham Wealth Partners.
“So you could get rising rates but from very low levels and that’s good for the markets because it’s showing economic strength.”
Swedroe said that’s not the case now. And inflation isn’t soaring just because of a strong economy. It’s also being pushed up by unusual events, like the war in Ukraine, lingering supply chain kinks – and of course, COVID.
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