Ready, Set, HIKE!

August 25th Weekly Market Update

In only 10 days, the NFL regular season begins. Teams and coaches will be analyzing each other’s moves and plays, looking for any indication that can give them an edge to succeed. Some will play strong offense, others good defense from the moment of the first kickoff. Although some big plays could happen during the first kickoff or first hike, we know this is only the start of the game, and in turn only the start of the season. History suggests the same is true for the first Federal Reserve (Fed) interest rate hike as it relates to the stock market and economy.

While football teams are looking for an edge against their opponents on the field, investors will be keeping a close eye on the Fed to try and gain an edge as to when it will finish winding down its bond-buying program (quantitative easing 3) and eventually begin hiking short-term interest rates.

Investors appear to be comfortable with the end of quantitative easing following last year’s taper tantrum; however, the new fear is what impact Fed rate hikes will have on the market. Improving economic growth, as well as a lower unemployment rate and inflation moving closer toward the Fed’s target, has been supportive of higher stock market levels and valuations, as we see the S&P 500 Index continue to make new highs. Corporate revenue and earnings growth have also been supportive of the stock market’s hike higher. But when Chair Janet Yellen, as the Fed’s new quarterback, announces the first rate hike either to cool the economy or to curb inflation, what impact will we see in the market and economy? Will it be better to go on the offense or play good defense? We take a look back in this Weekly Market Commentary to provide evidence as to why we believe it is still time to play offense.

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