Ease in before we know the water is lovely

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Ease in before we know the water is lovely


We do not have to go back very far in history to find a time when the Federal Reserve was raising interest rates and tightening financial conditions while stocks were also rising. As seen in the chart below, there was Fed hiking during the 2003-2007 bull market and again during the 2009-2020 bull market. Stocks and the economy performed very well in these periods, and ‘don’t fight the Fed’ didn’t play out.

MOTM_02042023_graph1
Source: Federal Reserve Bank of St. Louis 2

In the current environment, I’m seeing that many investors are preferring to wait until the Fed hits the pause button on rate hikes before turning bullish again. But to assume that stocks will only start to climb once the Federal Reserve cuts rates or pauses hikes is to assume that stocks move concurrently with economic news and Fed policy, which we know historically has not been the case.


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