Financially Speaking Podcast

Stock Market Behavior When Interest Rate Rise

Published on September 16, 2015

Since 1920, during the twelve months after interest rates rose, stocks rose 13 out of 16 times.  The average gain for the S&P 500 index (stocks) was 16.2%.

For the thirty-year period 1951-1981. interest rates went up from 2.5% to 18% and during that time, the average annual return for stocks was 11.15%.  

Since 1971, there have been seven periods when the Federal Reserve Bank raised interest rates and the average gain in stocks was 19.21% the following year.  Prior to each time the Fed raised rates, the stock market experienced higher volatility.

In the past, the Fed raising interest rates usually signals that the economy is getting stronger, more jobs are being created and greater demand for products and services. All these factors are good for stocks.

The Fed has not raised interest rates since 2006; and at the moment almost everyone in the financial world expects the Federal Reserve Bank to raise interest rates next week.

Yogi Barra said it best: "It's like deja' vu all over again!"

Tags: stock market; rising interest rates

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