01 Feb Viewpoints February 2022
TWIN PEAKS?
Equity markets ended 2021 on a strong note, following typical seasonal patterns. However, volatility in both interest rates and equities has picked up as of late. Realtime economic data is showing the negative effect of the Omicron variant, while persistently high inflation has pushed the Federal Reserve into a distinctly more hawkish stance. Market expectations of interest rate hikes have edged up in the last month, while volatility in interest rate markets has increased noticeably due to investor uncertainty. Financial market history can provide some comfort to investors, as the exhibit below shows. Equities, along with bonds, can perform well during interest rate hike cycles — especially when they are well-telegraphed. In the last seven rate hike cycles, stocks only generated a negative return during the 6-month period before and after the initial hike once — and that was accompanied by a whopping 3.25% increase in the Fed funds rate. Read the full Viewpoints February 2022 newsletter.
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