Powell is the Federal Reserve Chairman.
There is a story about this.
The Fed is likely to raise interest rates next year.
When the Fed hikes rates, stock market investors believe that equities will perform poorly.
The stock market has lost two years in the last 30 when the Fed raised rates.
When the Federal Reserve raises interest rates, investors are conditioned to believe that the stock market will perform poorly, as a jump in the cost of capital can hurt the financial profile of long-duration assets. The data tells a different story.
The S&P 500 has only had two losing years since 1990 when the Fed raised interest rates, a 9% decline in 2000 and 4% decline in 2018, according to DataTrek Research. The firm believes that investors don't need to be concerned about the Fed's likely start of interest rate hikes.
Nicholas Colas said in a Friday note that Fed rate hikes aren't at the top of his list of reasons to be cautious on US large caps.
The Fed funds futures show a 75% chance of an interest rate hike late next year, according to the FedWatch Tool. Consumer price data showed inflation hitting its highest rate since 1990.
Colas said that it is unusual to see US large caps decline when the Fed is raising rates.
Twice in the 1990's, once in the 2000's and once in the 2010's, rate hikes occurred. The S&P 500 had a positive compound annual growth rate of 17.9%, 10.3%, and 9.2% over the decades.
Colas said that the lesson from the past 30 years is that stocks tend to fall when the Fed tightens financial conditions.
"That may happen at some point in the upcoming Fed rate cycle, which markets believe will begin next summer, but certainly not right off the bat," he said. It will take multiple 0.25-percentage-point increases before interest rates are considered historically low, because the Fed Funds rate is at a rock- bottom range of zero to 0.25%.
When the underlying economy is still growing, and the Fed hikes rates, stocks can be sold by investors, according to DataTrek.
Business Insider has an original article.
