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View Full Version : What happens when/if the fed raises int rates for the first time in 10 years?



Joshuatree
16-12-2015, 03:56 PM
IS it built in to the mkts already? Im thinking yes but i don't really know.

Is it that relevant for the NZX?

Depends on how aggressive Janet is and what she says ahead, more rises, aggressive, or gradual hikes?

What will happen to the Junk Bond Elephant in the room. BOOM!?

Energy and resources maybe falling further etc.

Joshuatree
16-12-2015, 05:50 PM
No opinions?

Baa_Baa
16-12-2015, 06:36 PM
IS it built in to the mkts already? Im thinking yes but i don't really know.

Is it that relevant for the NZX?

Depends on how aggressive Janet is and what she says ahead, more rises, aggressive, or gradual hikes?

What will happen to the Junk Bond Elephant in the room. BOOM!?

Energy and resources maybe falling further etc.

I was surprised, sort of, to see the DOW bounce perfectly off the rising trend line from the Aug lows. Maybe a sign of 'priced in' but the back drop of sovereign and public Debt overhang hasn't gone away, world peace hasn't broken out and at this stage there's some uneasy feelings about pending US FA reports. Right now SP5, DOW30 and NAS are all down on Futures. We can only wait and see, a down day will surely flow through to local markets as will an up day. Like being on the end of the whipping hose, as they say.

Joshuatree
17-12-2015, 07:18 AM
Thanks BB. Int rates up a quarter.Doveish comments , gradual rise.
Dow up re .5% atm

Nasdaq S&P similar,,

Oil down to $37 ,

Gold up a tad

Joshuatree
17-12-2015, 07:27 AM
Wells Fargo NOT raising DEPOSIT rates though.!! A Plus for Equities.

Valuegrowth
17-12-2015, 01:39 PM
http://news.yahoo.com/us-stocks-dollar-gain-fed-hikes-interest-rates-191812679.html

Fed rate hike powers stocks, dollar gains

Joshuatree
17-12-2015, 07:03 PM
Well NZX up re a quarter of a percent
ASX back up above 5000 (phew) 1.46% up
Oil lower still
Gold shining a tad brighter
Janet yellen successfully maintains a monotone all the way through (snore..... wha.whaaat!)

Joshuatree
17-12-2015, 07:37 PM
Europe mkts looking good to , so far, so good.

Hoop
21-12-2015, 09:33 AM
An interest rate increase shows the FED recognises the fact that in the near future the core rate of inflation has the potential to rise, and thereby the FED is providing "tighter" and more expensive "available" money to help stem the expected start of inflationary pressure within the Economy aka Back to Monetary Policy as we know it...This action is always a negative pressure action for the Equity Markets under Monetary Policy..but this negative pressure may be neutralised by other positive pressures such as better future earnings..

The Wall St Stockmarket has been for the last few years running on steroids (Media has told us this)..that is, running with a very high annualised PE Ratio (media hasn't told us this)

Present day Scenario:...
The current (Sept 2015) annualised PE ratio for the SP500 is 24 and with the latest earning reports being a tad disappointing it may now be a faction higher....An Annualised PE Ratio has been over 20 (currently 24) for last 15 years (apart from 2 blips). Over 20 is regarded as dangerously high and is only possible without causing major problems when the inflation is hovering around it's sweet spot, that of around +1%...

Driver Theory:..Very long term Equity Market trends (Secular Cyclicals) are driven by one major (Primary) driver the trend of the Annualsed PE Ratio...Inflation Rate movements is the primary driver of the Annualised PE Ratio trend...There are many secondary drivers which effect the lesser long term trends (cyclical cycles, corrections) and unfortunately these drivers e.g interest rates, oil, bonds, etc are mentioned so often in the media that the readers are lead to believe they are primary drivers...There are multitudes of tertiary drivers which drives shorter term trends.... and in even more greater numbers are the quaternary drivers which effect daily market trends e.g media noise rumours malicous gossip intersider trading..TA stop/loss triggers etc

In defense to the Interest rate Driver...this driver has acted like a primary driver these last 35-40 years since becoming a dominate Monetary Policy Tool for the Central Banks but this could change in the future if the Central Banks move away from Monetary Policy.....Before the1980's (before Monetary Policy) the charts show interest rates movements as having variable effects on Equities and so in the future interest rates may regain this behaviour.


Dark Clouds on the Horizon..If the FED thinks there is inflationary pressures on the horizion then in theory the SP500 will not be able to continue living with such a high Annualised PE Ratio...In the past 120 years...inflation outside it's sweet spot (+1%) combined with an Annualised PE Ratio of 25 was an area when Bear Markets were triggered to begin the self correction cycle to cool overpriced markets.

The historic (120 year) median of SP500 Annualised PE Ratio's is 15.

With inflation changes away from the sweet spot (up or down[deflation]) a falling Annualised PE trend is likely to occur..

Armed with the knowledge of the above comments...The Year 2020 scenario for the SP500 Index could be something like this...lets add in the possible forecast variables..Lets say there is still the same Economic Cycle boom in progress and the Earnings growth is still very good and has risen from the present $105 to say $140 .. an inflation rate still contained within FEDs boundaries at say +2.5%....an annualised PE Ratio back at "normal" levels of 15 because inflation (primary driver) has risen above it's sweet spot.....

Result? ...In the year 2020, a SP500 index of 15 x 140 = 2100

Now you all know why I'm not overly optimistic of a continuation of a Bull Market cycle even with a good USA economic recovery...

Jay
21-12-2015, 01:07 PM
Thanks Hoop, much appreciated

Valuegrowth
22-04-2018, 09:44 AM
https://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2018/04/20/US-Dollar-May-Add-to-Gains-as-Fed-Rate-Hike-Outlook-Firms.html