Interesting chart/data here from Guggenheim showing the 12 month performance prior to a Fed tightening. There’s a fair bit of data mining in here, but the obvious takeaway is that Fed tightening or the anticipation of it doesn’t tend to scare off equity market participants:
“Federal Reserve Chairwoman Janet Yellen has made it clear that she could raise interest rates as early as June 2015, although we do not see that as likely. During the 12 months before a Fed tightening cycle begins — a period we could now be entering — U.S. equities have typically outperformed fixed income by a wide margin. In the last five periods leading up to Fed tightening, the S&P 500 has gained 22 percent on average in the year before the Fed began raising rates, compared to 4.2 percent or less for fixed-income assets.”
Source: Credit Suisse, Barclays, Bloomberg, Guggenheim Investments. Data as of 3/31/2014. *Note: Average price performance in the 12 months prior to Fed tightening cycles in 1983, 1986, 1994, 1999, and 2004.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.