Get ready for the climb. Here’s what history says about stock-market returns during Fed rate-hike cycles.

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Bond yields have been rising again so far in 2022. The US stock market is in the grip of a real correction. But what can you really tell from just two weeks into the new year? Not much and enough.

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One thing is for sure: the days of making easy money during the pandemic are over. Benchmark interest rates are at higher levels and bond yields, which are anchored at historically low levels, are set to rise.

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Reading:weekend reads: How to invest amid high inflation and rising interest rates

Federal Reserve members seemed unable to articulate this last week, ahead of the traditional media blackout that preceded the central bank’s first policy meeting on January 25-26.

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This week the US consumer-price and producer-price indices have strengthened market expectations of more aggressive or bullish monetary policy from the Fed.

The only real question is how much the Federal Open Market Committee will raise interest rates in 2022. JPMorgan Chase & Co. JPM,
-6.15%
CEO Jamie Dimon told that seven That could be the number to beat, with market-based projections pointing to the possibility of three hikes in the federal funds rate in the coming months.

check out: Here’s How the Federal Reserve Could Shrink Its $8.77 Trillion Balance Sheet to Tackle High Inflation

Meanwhile, 10-year Treasury note yields rose 1.771% on Friday afternoon, meaning yields have climbed nearly 26 basis points in the first 10 trading days to begin a calendar year, the highest since 1992. The fastest growth of any kind. For Dow Jones market data. From 30 years ago, the 10-year jump rose 32 basis points to nearly 7% to begin that year.

2 year note TMUBMUSD02Y,
0.960%,
FactSet data show, which tends to be more sensitive to the Fed’s interest rate moves, is knocking at the door of 1%, up 24 basis points so far this year.

But does an interest rate hike translate into a weaker stock market?

As it turns out, during the so-called rate-hike cycles, which we are set to enter in early March, the market tends to outperform poorly.

In fact, the average return for the Dow Jones Industrial Average (DJIA) during the Fed rate-hike cycle,
-0.56%
is about 55% of that of the S&P 500 SPX,
+0.08%
Gain of 62.9% and Nasdaq Composite comp is,
+0.59%
According to the Dow Jones, using data going back to 1989, there has been an average positive return of 102.7% (see attached table). Fed interest rate cuts, perhaps unsurprisingly, also yielded strong gains, with the Dow rising 23%, the S&P 500 up 21% and the Nasdaq by 32%, on average during the Fed rate hike cycle.

dow jones market data

Interest rate cuts take place during periods when the economy is weak and when the economy is seen as too hot by some measures, leading to rate hikes, which are reflected in the stock market during periods when interest rates are cut. may cause disparity in performance.

To be sure, it is hard to see the market outperforming during a period in which the economy experiences 1970s-style inflation. Right now, it doesn’t look like bullish investors will get double-digit returns in 2022 based on stock size. The Dow is down 1.2%, the S&P 500 is down 2.2%, while the Nasdaq Composite is down a whopping 4.8% so far in January.

Worried about a bubble? According to Goldman, why should you weigh more than US equities this year?

What’s working?

So far this year, the energy sector of the S&P 500 has been in energy winning stock market trades, with SP500.10,
+2.44%

XLE,
+2.35%
Looking at 16.4% advances so far in 2022, while the fiscal SP500.40,
-1.01%

xlf,
-1.04%
Running in second place, up 4.4%. The other nine sectors of the S&P 500 are either flat or at lower levels.

Meanwhile, price subjects are making a more pronounced return, posting a 0.1% weekly gain over the past week, as measured by the iShares S&P 500 Value ETF IVE,
-0.14%,
But the month to month return is 1.2%.

These 3 ETFs Let You Play the Hot Semiconductor Sectors Where Nvidia, Micron, AMD and Others Are Rapidly Selling

What’s not working?

Growth factors are getting affected as bond yields rise, as a rapid rise in yield makes their future cash flows less valuable. High interest rates also hinder technology companies’ ability to fund stock buybacks. Popular iShares S&P 500 Growth ETF IVW,
+0.28%
Down 0.6% in the week and 5.1% so far in January.

What’s really not working?

Biotech stocks are falling heavily with the iShares Biotechnology ETF IBB.
+0.65%
Down 1.1% in the week and 9% so far in the month.

and a popular retail-oriented ETF, the SPDR S&P Retail ETF XRT,
-2.10%
It dropped 4.1% last week, contributing to a 7.4% drop in the period so far this month.

and Kathy Wood, Head of ARK Innovation ETF ARKK,
+0.33%
Lost 15.2% in the first two weeks of January to end the week lower by about 5%. Other funds in the complex, including the ARK Genomic Revolution ETF ARKG,
+1.04%
and ARK Fintech Innovation ETF ARKF,
-0.99%
equally distressed.

And the popular meme name is getting hammered as well, GameStop Corp. With GME,
-4.76%
down 17% last week and over 21% in January, while AMC Entertainment Holdings AMC,
-0.44%
It fell about 11% in the week and more than 24% in the month.

gray swan?

Bill Watts of Businesshala writes that fears of a Russian invasion of Ukraine are rising, prompting analysts and traders to weigh potential financial-market shock waves. Here’s what his reporting says about geopolitical risk factors and their long-term impact on the markets.

week ahead

US markets are closed on Monday for the Martin Luther King Jr holiday.

Is the stock market open on Mondays? Here Are the Business Hours on Martin Luther King Jr. Day

Notable US Corporate Earnings

(Dow component in bold)
Tuesday:

Goldman Sachs Group
GS,
-2.52%,
Truist Financial Corp. TFC,
+0.96%,
Signature Bank SBI,
+0.07%,
PNC Financial PNC,
-1.33%,
JB Hunt Transport Services JBHT,
-1.04%,
Interactive Brokers Group Inc. IBKR,
-1.22%

Wednesday:

Morgan Stanley MS,
-3.58%,
Bank of America Bac,
-1.74%,
us bancorp usb,
+0.09%,
State Street Corporation STT,
+0.32%,
UnitedHealth Group Inc.
UNH,
+0.27%,
Procter & Gamble
PG,
+0.96%,
baby morgan kmi,
+1.82%,
Fastnal Company Fast,
-2.55%

Thursday:

netflix nflx,
+1.25%,
United Airlines Holdings UAL,
-2.97%,
American Airlines AAL,
-4.40%,
Baker Hughes BKR,
+4.53%,
Discover Financial Services DFS,
-1.44%,
CSX Corp. CSX,
-0.82%,
Union Pacific Corp UNP,
-0.55%,
Travelers Company Inc. TRV, Intuitive Surgical Inc. ISRG, Keycorp. key,
+1.16%

Friday:

Schlumberger SLB,
+4.53%,
Huntington Bankshares Inc. hbaan,
+1.73%

US economic report

Tuesday

Wednesday

Thursday

Friday

Key Economic Indicators for December at 10 am

,

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