The market was extremely volatile on past few occasions whenever the Fed meets to discuss when they should raise the interest rates. This is often followed by experts giving their opinions and some even identify the period this year when Fed will announce the rates increase. I find this amazing cause the only person who knows is none other than Yellen herself.
As there is no question about the impending rate increase in the near future, instead of trying to figure out when it will happen, I think to prepare one's portfolio, it is helpful to know what happened to STI historically when the rates were increased. I came across an article from a fellow blogger, 'A wealth of common sense', who did a study against the S&P 500. You can find his article here.
Using the same data points, let's find out how the STI had performed.
From Yahoo.com, I only managed to find STI data starting from 1988, thus the sample size is very small. Although we cant conclude anything from this chart due to the small sample size, it is interesting to note that during the 2003 to 2007, there is a 100% increase. On average, with the 4 rates hike, STI is still positive.
One last observation, I am not sure if this is coincidental, but months after the last rate increased, it was always followed by a correction as shown in the chart below.
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| Yahoo.com |
1 comment:
Thanks for the observation!
LS
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