Markets “In a Nutshell” for March 21, 2022
Investment Week at a Glance
Stocks finished higher for the week. The Dow Jones Industrial Average rose 5.50%, the S&P 500 was up 6.20%, and the NASDAQ rose 8.20%. Foreign stocks (MSCI EAFE) were also up, rising 5.20%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 2.15%. (Data source: Wall Street Journal)
Fed Begins to Raise Rates
The Federal Reserve announced the much-anticipated rate hike of 0.25% last week. This is expected to be the first of many rate hikes by the Fed over the next couple of years. Some Fed officials have stated they see rates going to 2.8% before they stop raising rates. Although this means very little because the economy and need to raise rates will change, it gives an idea of just how far we may have to go as we just moved higher than 0% to 0.25%. The reason for this rate hike and future hikes is to slow down the inflation we are seeing in the economy. Some believe the Fed is behind on raising rates as we are seeing inflation at the high of the last 40 years. If these hikes do not slow inflation the Fed will have to act more aggressively which will cause some worry in the market.
Future Hikes and Economy
The Fed also released a “dot-plot” that shows where they think they will raise rates. This showed that many officials saw 7 hikes this year and 4 in 2023. With the rate being 1.9% at the end of this year and 2.8% at the end of 2023. They also showed that they did not expect to raise rates anymore in 2024 as of right now. Although higher rates typically put pressure on the equity markets, stocks were able to rally last week as they now have more clarity around rate hikes and the Fed’s plan moving forward. The Fed has been able to shift its focus from employment to controlling inflation as the jobs market is in a strong position. The current unemployment rate is 3.8% with the spread between job openings and unemployed people at the widest gap in the past 20 years. With the strong employment numbers, people believe the economy should be able to handle higher rates as economic policy begins to tighten.
During the last Fed tightening cycle (2015-2018) how many rate hikes were there? (Scroll Down for Answer)
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2) 9, from 2015-2018 rates rose 9 times and by a total of 2.3% During that time period the S&P 500 rose by 28%.