**************************
You
won't believe me... but it's true...
Stock
prices and house prices actually do extremely well when the Fed
STARTS raising interest rates...
I
know, I know. I get it. It shouldn't happen.
Rising
interest rates should be a "negative" for stocks, as
corporate borrowing costs go up and profit margins go down.
But
it turns out, these things don't hurt stock prices... Based on
history, stocks go up.
Let
me explain...
Since
1950, stocks have performed incredibly well when the Fed has started
raising interest rates (called "tightening"). And stocks
have actually under-performed when the Fed has started cutting
interest rates (called "easing"). Take a look:
In
December, the Federal Reserve raised interest rates for the first
time since 2006.
The
rate hike is minor... It's almost irrelevant. What's happening is,
the Federal Reserve is trying to get interest rates more "back
to normal" as opposed to "tightening."
In
the case of Fed rate hikes, the first rate hike does NOT tend to end
bull markets. That might be because people are optimistic, and the
first interest rate hike is a sign that things are getting back to
normal.
Over
the last 30 years, stocks have moved higher in the two years after a
rate-hiking cycle began.
The
Federal Reserve just hiked rates. Based on history, stocks could go
higher over the next two years.
It's
not all roses... Stocks tend to fall for a couple of months after the
first time the Fed starts hiking rates. Then stocks enter a strong
move higher.
We
can't know for sure what will happen this time... There is no
guarantee of a small downward move followed by a big upward move. But
history is the best guide we have. And that's what it tells us.
The
story is similar with U.S. house prices...
It's
easy to make the case that house prices SHOULD go down when interest
rates start to go up, as you would think that mortgage rates would go
up.
But
history tells a different story about house prices after the Fed
starts raising interest rates...
Going
back to the late 1960s, house prices perform incredibly well when the
Fed starts raising interest rates. Take a look:
Most
folks simply assume that the Fed raising interest rates is a bad
thing for stock prices and for house prices.
Don't
fall for this myth. It's simply not true.
The
Fed is hiking rates for the first time since 2006 right now... But
the start of a rate-hiking cycle is not a bad thing, based on
history.
And
besides that, with the recent stock market correction and signs of
economic weakening, my guess is the Fed will NOT be raising rates any
further for at least the next twelve months.
U.S.
stocks and house prices can still go much higher from here...
On
Your Team,
Ken
951-760-3833
KenAHall@gmail.com
**************************
