The stock market tends to do fine during times when rates go up. Below are the annualized percentage changes shown per time period of rate hikes.
Aug 1954 – Oct 1957: 14%
Jun 1958 – Nov 1959: 24%
Aug 1961 – Nov 1966: 7%
Aug 1967 – Aug 1969: 4%
Mar 1972 – Jul 1974: -9%
Feb 1977 – Jun 1981: 11%
Mar 1983 – Aug 1984: 13%
Jan 1987 – May 1989: 16%
Feb 1994 – Feb 1995: 4%
Jun 1999 – May 2000: 10%
Jun 2004 – Jun 2006: 8%
Dec 2015 – Dec 2018: 8%
The economy is still strong. The Purchase Manager Index in the manufacturing industry is still above 50 so it's showing companies that manufacture are still expanding business operations. If Manufacturing companies are increasing purchases that means the companies that sell these manufactured products don't expect any slow down in sales. This earnings season will be very interesting to get a better understanding of any potential changes in consumer behavior. But if we look at the forward looking PMI of the manufacturing industry we should not expect anything out of the ordinary. Why is it forward looking you may ask. If your business sells manufactured products and places an order in March (the last month we have data on). The manufacturing company will take in your order and start producing your goods. Before these good actually end up in the warehouse of the company that bought from the manufacturing business we are months further.
Something that can be said is that the Consumer Confidence Index is not looking good. Consumers are far below the lows of 2020, nearly touching the lows of 2008 and 2011. This isn't necessarily an indication of a recession. But it could mean spending will be trending down and thus the earnings results of companies together with their outlooks will be underwhelming.
I expect earnings to do reasonable and with that we get through with the rate hikes and see the market rally slightly and prices stabilize. I might have my rose coloured glasses on. But what do I know.
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