Dave Lutz at Jones Trading says a rate hike from the Federal Reserve will be the best thing that happens to the stock market this year.
One big concern around rate hikes is that higher borrowing costs put pressure on company earnings, and ultimately, on stocks.
However, Lutz noted in a client email on Wednesday that investors would see a rate hike as a clear sign that the economy is on the up.
Other analysts have pointed out that stocks have rallied in the months leading up to, and for at least six months after a rate hike.
In a note to Business Insider, Lutz added: “Once the Fed starts raising, the economy is improving — and the market usually looks 9 months ahead. Conversely, when they started cutting the last 2 times — the market tanked (Fed acknowledging weakness).”
The timing for the first rate hike in a decade is still unclear, but there’s expectation that the Fed could move at its meeting next month.
Lutz also referenced this chart provided to him by portfolio manager Ryan Detrick, which shows what happened to the S&P 500 the last time the Fed raised rates.
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