18 Historical Fed-Rate-Raising Cycles: 18 Straight Market Declines

Real Investment Advice  ( Original )
JUN 7, 2018

A sustained interest rate hiking campaign, as undertaken by the Fed, has always resulted in negative stock market returns.

Always. Not usually, not might-be-correlated-to. Always. As in, 18 out of 18 times. Until now. When we’ve had the single highest percentage increase in history (93.33% peak to trough, so far).

So what gives? Of course, it’s the Fed. Having kept interest rates near zero for years on end and having filled corporate coffers with super cheap debt used to fuel market-bubble-sustaining corporate buybacks, the Fed has delayed the inevitable stock market correction.

Unless you believe that the Fed’s extreme interference in the markets, it’s use of enormous amounts of debt, has somehow solved the boom-bust debt problem it created in the first place so many years ago, there is only one logical conclusion to be drawn: We’re headed for 19 out of 19, only this time, the correction is going to mirror the extent of the Fed’s meddling, and be more severe than ever before.

There have been ZERO times when the Federal Reserve has embarked upon a rate hiking campaign that did not eventually lead to negative economic and financial market consequences.



What is clear from the analysis is that bad things have tended to follow sustained increases in interest rates. As the Fed continues to press forward hiking rates into the current economic cycle, the risk of a credit related event continues to rise.

For all the reasons currently prognosticated that rising rates won’t affect the “bull market,” such is the equivalent of suggesting “this time is different.”

It isn’t.

Importantly, “This Cycle Will End,” and investors who have failed to learn the lessons of history will once again pay the price for hubris.


ORIGINAL SOURCE: The Coming Collision Of Debt & Rates by Lance Roberts at Real Investment Advice on 6/7/18