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With the Fed rate decision coming up today, we thought we'd re-post this post from April 19th:
The prospect of the Fed nearing an end to its tightening cycle seems like a plausible reason for a 200 point rally in the Dow - right?
In our newly released study, The Inverted Yield Curve ~ The End of The Cycle, we analyzed prior Fed rate tightening cycles since 1962. Among our findings was that in the period spanning the Fed's last rate hike to its first cut (average span of six months), the market has an average decline of nearly 7%, and has only risen during two of the nine periods. In the chart below, we created a composite chart of the S&P 500's performance during the 'limbo' period of Fed tightening cycles.
Very interesting commentary and data. If you, however, include only the data where there was no recession (1980, 1984, 1987, 1989, and 1995) the average return looks dramatically different -- (1.36%). Obviously the difference is huge when there's no recession...the one outlier was 1987 (which was the only big negative number) and it had its own "special situation".
The BIGGER question therefore is ...will we have a recession?
Posted by: ss | August 08, 2006 at 11:46 AM
Another question to ask is, is this the last hike? If they pause through elections and hike again in Dec, then what?
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