Thursday, 9 April 2015

Does Fed tightening hurt stocks?

With the Federal Reserve expected by many analysts to tighten monetary policy some time this year, investors have become concerned about the stock market as tighter monetary conditions are considered bad for stocks.

However, John Buckingham at The Prudent Speculator thinks that there is little reason for concern, at least at the start of monetary tightening.

Based on S&P 500 data since 1945, Buckingham showed that in the six months before the start of tightening, the S&P 500 rose an average 9.8 percent. In the six months after the start of tightening, the S&P 500 on average still rose, albeit by a smaller 6.7 percent.

So, based on historical data, Fed tightening, by itself, does not necessarily hurt stocks much.

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