Will rising interest rates hurt Santa?
It seems all but certain that the Federal Reserve will (finally) raise short-term interest rates in the US at their December 16th meeting. The increase is likely to be only 0.25% and my feeling is that their announcement will indicate that the timing and size of any future rate increases will be slow and gradual.
There are varying opinions on what impact rising interest rates will have on the economy and financial markets. First, let’s not lose sight of how historically low interest rates have been since the 2008/2009 financial crisis. The chart below shows that long-term interest rates, as measured by the 30yr US Treasury bond, have been at a level not seen since the 1940/1950s.
Second, an analysis of previous times when the Federal Reserve is raising interest rates shows that equity markets are not negatively impacted. Since 1953 the average months from the Fed’s first interest rate hike until the equity markets peak is ~30 months. Moreover, the average performance of the S&P 500 three months after the first hike is -0.2%, six months later it is +4.1%, nine months +7.3%, and in 12 months +9.5% according to the Federal Reserve as compiled by Omega Advisors. (source: Raymond James)
Finally, on the question of whether raising interest rates will hurt the economy, I feel the US economy is stable enough to absorb a small, slow increase in interest rates. The Commerce Department on 11/24/2015 said the nation’s gross domestic product for the 3rd quarter 2015 grew at a 2.1 percent annual pace, not the 1.5 percent rate it reported last month. The growth estimate was boosted by upward revisions to business spending on equipment and investment in home building. While consumer spending was revised down a bit, its pace remained brisk. The chart below shows the US economy has grown (as measured by GDP) for 10 out of the last 11 quarters, dating back to the 1st quarter of 2013. (source: CNBC.com)
Now that Black Friday and Cyber Monday are behind us, how are consumers doing? Bespoke Investment Group conducted a consumer survey that indicates consumer spending plans for 2015 are almost exactly the same as this time last year. The survey also found the Amazon and Wal-Mart were by far the stores of choice. (source: Raymond James)
So will we get a so-called “Santa Claus” rally in stocks during December? Only time will tell but this quote from Kimble Charting Solutions is interesting – “So what happens the final 30 days? Well, what stands out to us is the last 30 days of the year haven’t been lower for an incredible 12 straight years.”
Wishing you and your loved ones a blessed and wonderful holiday season!
December Calendar of Events (comments and additions for future months are always welcome)
- December is Universal Human Rights Day. Let’s pray that all people, regardless of race, religion, gender, or nationality can learn to treat others as we all wish to be treated.
December 6th Happy Hanukkah – May it also be a festival of love, happiness, success, and health in your world now and always.
December 10th Human Rights Day – I have cherished the ideal of a democratic and free society… it is an ideal for which I am prepared to die. – Nelson Mandela,
December 15th Healthcare open enrollment – for coverage starting Jan 1, 2016 – ENDS!
December 19th Christian’s birthday
December 22nd Winter Solstice – The shortest day of the year and the start of winter
December 25th Merry Christmas – have a wonderful holiday. Let’s all remember the true significance of this day – the birth of Christ.
Sources: Raymond James & Associates, CNBC.com, Bespoke Investment Group
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