Are Fed Hikes Bad for the Market?
Anticipation of inflation and increases in the Fed Funds rate by the Federal Reserve have traditionally sent the stock market reeling. History, however, indicates that equities tend to rise alongside the Fed Funds rate.

  • ​​During each of the last five completed rate tightening cycles, the S&P 500 climbed, averaging a 10.5% increase over these five cycles.

  • Typically, these gains have occurred because the Fed tends to raise rates gradually in small increments, and rate hikes take time to impact the economy. The Fed’s own model demonstrates that a 100 bp increase in short-term rates slows the economy 40 bps and only after a few quarters. Just as important, the economy is typically strengthening as the Fed hikes rates.

  • Currently we may be as far as 175 bps away from the forecasted peak of the current tightening cycle, which may mean equities have room to run as the Fed continues to attempt to normalize rates.1

Estimated future Fed rate hikes based on “Economic Projections of Federal Reserve Board Members and the Federal Reserve Bank Presidents,” March 2018.

The views expressed are the views of Fred Alger Management, Inc. as of March ​2018. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

Risk Disclosures: Investing in the stock market involves gains and losses and may not be suitable for all investors. Growth stocks tend to be more volatile than other stocks, as the prices of growth stocks tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political and economic development.

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