Here’s What Higher Interest Rates Mean for Stocks
There’s no denying that the world is a mess right now.
But right now, Wall Street is focused on the Federal Reserve.
This past Wednesday, the Fed announced it will raise interest rates for the first time since 2018.
This will lift rates to a range between 0.25% and 0.5%.
For many, the rate hike was long overdue.
Stephen Stanley, chief economist at Amherst Pierpont, said: “The March FOMC meeting will go down in history as the one in which the committee saw the light.”
Fed Chairman Jerome Powell also signaled that we should expect as many as six more hikes by the end of the year.
Stocks rallied on the news on Wednesday but remained steady throughout the close of the week.
Now you might think that rate hikes are bad news for stocks.
After all, rising rates are meant to make stocks less attractive. The idea is that consumers should be saving, not investing.
That’s true to a degree — at least in the near term.
A study by Evercore ISI shows that the S&P 500 Index fell an average of 4% in the first month after the initial hike.
But it also revealed that the index was as much as 3% higher after six months.
And after 12 months, that percentage rose to 5%.
In fact, the S&P 500 has risen at an average annualized rate of 9.4% during the previous rate hike cycles.
(Source: Truist Advisory Services.)
Between a lingering pandemic and global tensions, the environment will continue to be uncertain. But history shows that the stock market is still the place to be.
Here at Winning Investor Daily, Ian King, Steve Fernandez, Andrew Prince and the rest of the team aim to bring you tomorrow’s trends today.
So make sure you’re following along for the best investment opportunities.
And keep reading below for this week’s Winning ideas.
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Senior Managing Editor, Banyan Hill Publishing