Last week we learnt markets shouldn’t necessarily fear monetary policy tightening from the US Federal Reserve.
According to research conducted by UBS, from an historic standpoint, US stocks tend to perform well following an initial rate hike.
Well, we have some good news for the stock market bulls. On top of a good performance after an initial Fed rate increase, it appears US stocks also have a tendency to rally before a tightening, at least according to the chart below.
Research by Gluskin Sheff & Associates Incorporated’s chief economist and strategist David Rosenberg revealed the S&P 500 has risen in the three months before the start of a Fed tightening cycle on every occasion since 1986.
According to Rosenberg’s research the S&P 500 has risen between 1.1% to 7% in the lead up to the beginning of prior tightening cycles.
If history holds true it looks as though US stocks will be setting a few more all-time highs — both prior and after the Fed hikes — presuming it occurs this year.