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Get ready for the climb. Here’s what the story says about stock market returns in the Fed’s rate hikes.

Get ready for the climb. Here’s what the story says about stock market returns in the Fed’s rate hikes.

Bond yields will rise again for the rest of 2022. The US stock market appears to be vulnerable to a good correction. But what can you really say about just two weeks into the new year? Not much and much.

One thing is for sure: the days of making easy money are over in the days of the pandemic. The reference interest rate is heading higher and the yield on bonds, which has been set at a historically low level, will rise at the same time.

Read: Weekend reading: How to invest in rising inflation and rising interest rates

It seemed that the members of the Central Bank could not make it clear last week, ahead of the traditional lack of media that precedes the Central Bank’s first policy meeting in the year 25-26. January.

The release of the US Consumer Price Index this week only strengthened the market’s expectations of a more aggressive or hawkish monetary policy from the Fed.

The only real question is how many interest rate hikes the Federal Commission will provide in 2022. JPMorgan Chase & Co. JPM,
CEO Jamie Dimon hinted that seven could be the number to hit, with market-related forecasts suggesting the possibility of three increases in fund interest rates in the coming months.

Be sure of: This is how the Central Bank could reduce its $ 8.77 trillion balance sheet to fight high inflation

At the same time, the 10-year yield on the Treasury returned 1.771% on Friday afternoon, which means that the yield rose by 26 basis points in the first 10 trading days to start the calendar year. , which is the fastest increase since 1992, according to Dow Jones market data. 30 years ago, the 10-year rose by 32 points to about 7% at the beginning of this year.

2-year note TMUBMUSD02Y,
which tends to be more sensitive to Fed interest rate changes, knocks on the door by 1%, up 24 points so far this year, according to FactSet.

But will interest rate hikes result in a weaker stock market?

Finally, in the so-called interest rate hike cycles, which we look to enter as early as March, the market tends to behave strongly, not badly.

Indeed, on the Fed’s interest rate hike, the average yield of the Dow Jones Industrial Average DJIA,
is almost 55%, of the S&P 500 SPX,
+ 0.08%
is a profit of 62.9% and Nasdaq Composite COMP,
+ 0.59%
was averaging a positive return of 102.7%, according to the Dow Jones, with data from 1989 (see attached chart). The Central Bank’s interest rate cuts, which may not come as a surprise, also yielded large gains, with the Dow Jones rising by 23%, the S&P 500 rising by 21% and the Nasdaq rising by 32%, on average during the Fed’s rate hike process.

Dow Jones market data

Interest rate cuts tend to occur during periods when the economy is weak and interest rate rises when the economy is considered too hot to some extent, which can explain the discrepancy in stock market performance during interest rate cut periods.

Admittedly, it is more difficult to see the market perform better at a time when the economy is experiencing inflation in the manner of the 1970s. At present, it seems unlikely that a bullish investor will receive butter from double-digit returns. Based on stock performance so far in 2022. The Dow Jones has fallen by 1.2%, the S&P 500 has fallen by 2.2% and the Nasdaq Composite has fallen by 4.8% so far in January.

Read: Are you worried about a sphere? Why you should overweight US stocks this year, according to Goldman

What works?

So far this year, the winner has been the energy business, with the energy sector SP500.10 from the S&P 500,
+ 2.44%

+ 2.35%
see a 16.4% increase so far in 2022, but the budget SP500.40,

is in a distant second place, up by 4.4%. The nine S&P 500 sectors are either stable or lower.

At the same time, value themes are widening again, reaching a 0.1% weekly increase last week, as recommended by the iShares S&P 500 Value ETF IVE,
but from the beginning of the month the return is 1.2%.

See: These 3 ETFs allow you to play in the hot semiconductor industry, where Nvidia, Micron, AMD and more increase their sales rapidly

What does not work?

Growth factors are forced when bond yields rise, as a rapid rise in yields makes their future cash flows less valuable. Higher interest rates also hamper the ability of technology companies to finance stock purchases. The popular iShares S&P 500 Growth ETF IVW,
+ 0.28%
has fallen by 0.6% this week and 5.1% in January so far.

What’s wrong?

Biotech stocks will be bombed, with iShares Biotechnology IBB ETF,
+ 0.65%
decreased by 1.1% during the week and 9% from the month so far.

And popular trading ETF, SPDR S&P Retail ETF XRT,
decreased by 4.1% last week, which contributes to a 7.4% decrease from the beginning of the month.

And flagship Cathie Wood ARK Innovation ETF ARKK,
+ 0.33%
ended the week down by almost 5% for a 15.2% decrease in the first two weeks of January. Other funds in the group, including ARK Genomic Revolution ETF ARKG,
+ 1.04%
and ARK Fintech Innovation ETF ARKF,
are similarly suffering.

And popular meme names are also typed, with GameStop Corp. EMG,
fell by 17% last week and more than 21% in January, but AMC Entertainment Holdings AMC,
decreased by almost 11% during the week and more than 24% in the month to date.

Gray Swan?

CNET correspondent Bill Watts writes that fears of Russia’s invasion of Ukraine are growing, prompting experts and traders to weigh in on possible shocks in the financial markets. Here is what his report says about geopolitical risk factors and their long-term effects on the market.

a week ahead

US markets are closed due to Martin Luther King Jr. of the holiday on Monday.

Read: Is the stock market open on Monday? Here are the opening hours of Martin Luther King Jr. day

Significant profits for US companies

(Dow components in bold)

Goldman Sachs Group
Truist Financial Corp. TFC,
SBNY Signature Bank,
+ 0.07%,
PNC Financial PNC,
JB Hunt JBHT Transport Services,
Interactive Brokers Group Inc. IBKR,


Morgan Stanley MS,
Bank of America BAC,
US Bancorp. USB,
+ 0.09%,
State Street Corp. STT,
+ 0.32%,
UnitedHealth Group Inc.
+ 0.27%,
Procter & Gamble
Morgan kmi children,
+ 1.82%,
Fastenal Co. FAST,


Netflix NFLX,
+ 1.25%,
United Airlines Holdings UAL,
American Airlines AAL,
Baker Hughes BKR,
+ 4.53%,
Discover the DSF financial services,
CSX Corp. CSX,
Pacific Corp. UNP,
The Travelers Co. Inc. TRV, Intuitive Surgical Inc. ISRG, KeyCorp. CLÉ,
+ 1.16%


Schlumberger SLB,
+ 4.53%,
Huntington Bancshares Inc. HBAN,
+ 1.73%

US Economic Reports


  • The Empire State Production Index for January is due at 8:30 ET

  • NAHB housing index for January at 10:00


  • Building permits and construction will begin in December at 8:30 p.m.

  • The Philly Fed index for January at 8:30 p.m.


  • The initial unemployment claims for the week ended on January 15 (and continued claims for January 8) at 8:30 p.m.

  • Current house sales for December at 10:00.


Leading economic indicators for December at 10:00