Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Run Higher in Stocks Not Over Yet as Fed Hikes Will Take Time to Play Out

Stock MarketsJan 25, 2022 04:46PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters.

By Yasin Ebrahim

Investing.com – The broader stock market has been hit over the head by a brick, tailor-made by a Federal Reserve in emergency mode for far too long, but as the central bank goes on the offensive against inflation, calls to ditch stocks are premature.

“We do not favor materially reducing portfolio exposure to risk assets,” Wells Fargo said ahead of the Federal Reserve decision due Wednesday.

At the culmination of its two-day meeting, the Fed is widely expected to signal that the liftoff for rates will get underway in March, and stress the need to remove emergency policy measures.

The Fed’s hope is that less pedal to the easing metal will curb demand and tame inflation enough until supply-chain issues -- the key suspect pushing prices higher -- will ease later this year.

Showing up late to the inflation party, and then being forced to play catch up is a risky game. Tighten too much and too fast at a time when economic growth is expected to deaccelerate raises the risk of undoing the recovery made so far.

In a sign that shows just how far the Fed is behind the inflation curve, bets on aggressive Fed action continue to gather steam.

“We see a risk that the [Federal Open Market Committee] will want to take some tightening action at every meeting until the inflation picture changes,” Goldman economist David Mericle told clients.

Against the backdrop of rising Fed hike bets, sentiment on risk assets has soured, pushing the S&P 500 to flirt with correction territory as investors brace for regime change from the Fed.

The Fed put, a source of comfort for investors that when things go bump in markets, the central bank will step in to cushion the fallout, is fast fading and a new normal of lower liquidity in markets, higher rates, and tighter financial conditions is being priced in.

But history suggests that those calling for the endgame for equities are too early as the Fed rate hikes tend to take some time to filter through before eventually putting the final lid on stocks.

“Based on the last seven interest-rate cycles, equities have tended to peak at the end of the Federal Reserve’s rate-hiking cycles, not at the beginning,” {{Wells Fargo said.}}

While the pain felt in stocks recently is grabbing the spotlight, correction are part and parcel of the market, particularly when returns have been running above trend for so long.

“We're giving back a third of the return from last year,” John Luke Tyner, Portfolio Manager at Aptus Capital Advisors said in an interview with Investing.com on Tuesday. "Over the last three years the S&P 500 is up about 100% ... looking at at this from a 30,000 foot view this recent drop is not that big of a deal.”

Run Higher in Stocks Not Over Yet as Fed Hikes Will Take Time to Play Out
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (20)
Fong SH
Fong SH Jan 26, 2022 2:57AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Huge correction coming, probably mid February onwards Dow will slide Just my thoughts, cheers.
Adam Paine
Adam Paine Jan 26, 2022 12:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
you can't base the last seven interest-rate cycles on current market conditions. this is the wild west
Yankee Steve
Yankee Steve Jan 25, 2022 10:36PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Wrong tool
Yankee Steve
Yankee Steve Jan 25, 2022 10:35PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Raising interest rate does not solve supply chain issues
Joel Schwartz
Joel Schwartz Jan 25, 2022 9:36PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Oil goes up 25% in a month and they continue to lie about causing inflation….
Ka Sh
Ka Sh Jan 25, 2022 9:36PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
it's superficial price hike. If future cars will run on EV then the price of oil must go down.
Joel Schwartz
Joel Schwartz Jan 25, 2022 9:36PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ka Sh Sure in the future, but in the meantime it’s just pushing the price of transport up parabolically.
Ka Sh
Ka Sh Jan 25, 2022 9:34PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
After some time it won't matter as prices will factor in the hike.High inflation will also get adjusted by the suppliers pushing down the price to consumers. Simple example: There is inflation and education tuition fees increase, real estate price, food price increase. People don't stop consuming. A coke must be 1 pence few decades back and now 1 dollar. It's still consumed.
Jack Peterson
Jack Peterson Jan 25, 2022 9:22PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
What goes up must come down, it is the law of all things for all of time
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Jan 25, 2022 9:00PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the difference this time is fed will slam the break really hard with.50 rate hikes. I have given the Fed new mandate. that shall be the only mandate
Junk Man
Junk_Man Jan 25, 2022 8:26PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Powell will try to talk the market up…
John Avenetti
John Avenetti Jan 25, 2022 8:26PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
how do you know that?? you don't. nice guess
JAMES CUNHA
JAMES CUNHA Jan 25, 2022 8:12PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
these articles are incredibly silly. the markets have been raging upward for 22 consecutive months preceding the current month.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email