Stock prices fell last week in response to the Fed’s plan to combat inflation, which staked out a more aggressive stance than investors had anticipated.
The Federal Reserve began raising interest rates in March and based upon the minutes of their last meeting they will continue to raise rates throughout the year. In the short term, the stock market has been down on this news and investor sentiment has also been dour. Although this is a typical reaction to the beginning of an interest rate hiking cycle, it’s not necessarily a reason to be concerned about stock market returns. Historically, these cycles last for years, with many rate hikes along the way and in combination with a rising stock market. The shift, and the time for more concern, is several years into the cycle and when bond yields are historically high. Remember, the Fed raises rates when the economy is strong and can absorb a rate hike.
Last week the Fed dominated headlines, but this week corporate earnings season kicks off and will be the biggest driver of the stock market overall this month.
Photograph by: Frederick Warren