Relationship between Interest Rate Hike and the stock market performance

Interest rate hile is actually good thing for the stock market in the long term based on statistics

This CNBC article is summarising what the FED said yesterday

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According to CME probabilistic calculator Prediction.

The chance of interest hike >= 0.5% by the FED is now 0.0% chance

Between >=0.25 and <0.5% is 99.8% chance

Between 0 to <=0.25% 0.2% chance.

Ukrainian war has happened & the interest rate hike of 0.25% is already expected so it is already priced in the stock market. So hopefully the stock market will response favourably despite interest rate hike.

Report

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The reason for stock Market fell today because of this FED lady Lael Brainard indicated. It is a aggressive Hawkish action, not just raise interest rate but also started to reduce their balance sheet as soon as May and would be doing so at “a rapid pace.”
Fed’s Brainard sees balance sheet reduction soon and ‘at a rapid pace’ Tue, Apr 5 2022 Jeff Cox

The major issue is that everyone’s now gotten used to low interest rates to the point of addiction ever since the 2008 financial crash

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FED March Meeting minutes was official released yesterday. This is I believe which cause the stock market to fall since two days ago. Instead of buying bond which they have been doing during COVID-19 pandemic they will now be selling it.
Fed officials plan to shrink the balance sheet by $95 billion a month, meeting minutes indicate. Published Wed, Apr 6 2022

Another one is a Signal Faster Pace of Rate Increases instead of a standard 25 basis point (e.g 0.25%) they will probably do it with 50 basis point (e.g 0.5%)

This is what caused the stock market to tank yesterday .

Inflation Number Likely to Be Ugly for March : A surge in energy costs from the war in Ukraine will have pushed the monthly reading higher April 11, 2022, at 9:33 a.m.

“Estimates are that inflation rose at an annual rate of 8.4%** last month, surpassing February’s 7.9% reading and the fastest pace since the early 1980s. The monthly rise is expected to be 1.2%. That would be a record for the recent era of low inflation.”


The CPI figure will be published before the US stock market open today. Inflation of 8.4% is already priced in yesterday stock marker tank. If the CPI figure lower than 8.4% than the market is likely to be green today.
Also this persistence COVID-19 issue that keep re-emerging.
WHO says it’s closely watching China as the country grapples with its worst Covid surge Published Mon, Apr 11 2022

The CPI figure has been published before the UK stock market open. It is 8.5%

Consumer prices rose 8.5% in March, slightly hotter than expected and the highest since 1981

We might be at the peak of inflation (in the US) , says Fed Governor Christopher Waller

His rational, the CPI is 8.5% but the core inflation is just 6.5%.
But the global issue still exist such as global supply chain problem, Chips shortages, war in Ukraine that effect the energy price.

Watch the short debate. This is based on Tom Lee previous statement, one of the respected Analysts /Strategists frequently appeared on CNBC
Is it time to be more positive on the markets?.

This is what has caused the stock market to tank today. I originally thought COVID-19 is think of the past after the vaccine was invented, but it seems they always come back to spook the market

Why the stock market continue to tank today ?
Earning seaosn of big tech, Fear of Lockdown in China keep continuing, Inflation and interest rate, war in Ukraine keep continuing

Covid-19 Cases Jump in Beijing as New Deaths Triple in Shanghai

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The Rrecession in the US might have been started

U.S. GDP fell at a 1.4% pace to start the year as pandemic recovery takes a hit. Published Thu, Apr 28 2022
As recession is defined as two consecutive quarters of economic decline, as reflected by GDP, the earliest that could be confirmed is end of the second quarter.

Good. Let’s get on with it and remove the uncertainty.

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NASDAQ composite is officially already in the bear market territory since a while ago. S&P currently drop 17% from 52-weeks high is close to bear market territory.

"On Monday, the S&P 500 dropped below the 4,000 level to a low of 3,975.48, marking the index’s weakest point since March 2021. The broad market index dropped 17% from its 52-week high as Wall Street struggled to recover from last week’s losses.

The Dow dropped 1.99%, down more than 12% from 52-week highs .

the tech-heavy Nasdaq Composite lost 4.29%, off more than 27% from 52-week highs "

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On Wednesday May 11, 2022 before the stock market open, the US CPI figure will be released. It was predicted that last month the inflation figured has peaked @8.5%.

So hopefully tomorrow when Inflation figure it will be showing a trending down making the FED to be less hawkish.

Prediction is correct. The inflation in the US peaked in March @8.5%. Today CPI figure is lower @ 8.3%. But the stock market is tanking because the core inflation which include food is higher than expected risng to 6.2%.

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Timing the Market during the BEAR MARKET is not uncommon, HFs managers are doing that all the time, contrarians are doing that, Warren Buffet is doing that. But keep in mind these people are mainly investing in individual stocks, not index fund or globally diversified portfolio. Also they have tools, fundamental analysis and technical analysis, first people to know various news regarding the stock market to gauge the best time to strike. They do not get it 100% right but they just need 50%+ right to beat the other alternative e.g not timing the market. This is just one examples of many HF managers.

(We’re still 50% in cash, and I wish we would’ve stayed at 70%, says Loup Ventures’ Gene Munster)
This is the statistics about average cash level of fund managers.
https://www.trustnet.com/news/13302671/extremely-bearish-fund-managers-take-cash-to-highest-levels-since-911-attacks

Looking at the graph, it looks like fund managers tend to have the most cash available at the lowest points in the market, this might make sense as it is a drain on money invested which drives prices lower. So maybe we could try to invest when cash is at a peak, like now?

Any thoughts?

@EquityInvestor
Most of these HF guys could time the market much better than retail investors as they have tools, know what they area doing and in the frontline of getting the news.
There is statistics which has shown that the Dollar Cost Averaging (DCA) outperform lump-sum in the “bear market”. This is of course given that people are investing in good high quality blue chip stocks, or index funds.
It does not need an expert in Statistics and Probably to know that DCA have higher chance to outperform lump-sum during the bear market, as during the bear market the stock price falls more than than it rises. Just imagine those who threw $100k lump-sum on the start of the market downtrend in November 2021. They might see their investment is now down 50%+ (depending of assets) .
As we do not know whether it is already the bottom, for people who are confident to throw money now; it is probably better to do DCA, e.g. deploying money in a smaller chunks rather than Lump-sum. Or even better with selective DCA such as only DCA in the red days.
This is just my personal opinion. People should do what they believe is the best for them.

This I highly doubt, they might get lucky, but that’s where my credit ends.

If anything this market is showing the complete opposite with reactionary whales dumping stocks 2 seconds after earnings - to me this looks like a bunch of terrified traders that don’t have the slightest clue how these companies are going to perform.

S&P500 is officially already in bear Market today May 20, 2022 down to 20.7% below its January record.

NASDAQ is already in bear Market since March 2022