inc.com Investors Are Wrong About Rate Hikes and Expensive Stocks, According to History Phil Rosen 2–3 minutes

Two of Wall Street’s most pressing concerns do not hold up against history.

Since 1982, the S&P 500 has actually performed better after rate hikes compared to rate cuts, according to Charlie Bilello of Creative Planning.

Historically after a hike, like the one the central bank delivered last week, stocks have gained 14.9 percent on average the following 12 months whereas after a cut, the average one-year return is 11.2 percent.

That runs counter to the belief that lower borrowing costs are always better for asset prices.

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This makes sense intuitively. The Fed tends to raise rates when the economy is strong enough to handle it, and that typically means earnings are growing and consumers are still spending. Cuts on other hand are often made in response to economic trouble, like flashing recession signals or a banking scare.

In effect, the Fed’s interest rate decisions reflect where the economy is already rather than determine where it’s going next.

That same thinking applies to buying stocks at all-time highs.

Dating back to 1950, buying the S&P 500 at a record has produced an average one-year return of 9.5 percent, according to FactSet. That’s slightly higher than the 9.3 percent average seen on buying during all other days.

That edge holds across three- and five-year time horizons.

Again, this is a more intuitive data point than most investors realize. Records tend to arrive in bunches because momentum drives markets. A new high usually means earnings are moving in

the right direction, and rarely do they signal the end of a bull market.

That the market today is coming off both a rate hike and a record high, then, should not be a reason to suddenly turn bearish on the year ahead.

History shows that, at least in a vacuum, these two happenings are actually bullish, and weak reasons to rush to the sidelines.

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