Okay, so the Greenspan era is over (finally) and we had another rate hike on Tuesday to make 14 consecutive increases. “Don’t fight the Fed” - right? We’ve done pretty well by my calculations. Since the FOMC started this sequence on June 30, 2004, the fed funds rate has increased 350% and the S&P 500 was up 13%. That is interesting given that I keep hearing how Wall Street is betting on stock prices heading higher once the Fed stops raising rates. If the market went up when rates were going up, why is it now true that it will go up when rates don’t change? Don’t get me wrong, I am not ignorant of the economic theories and effects of interest rates on equities, but I am trying to make the point that markets can go up with rates going up, staying flat or going down. Similarly, the market can go down under all the same scenarios.

I am intrigued by how certain most experts are that increases are ending now that Bernanke is running the show. Seems to me I have been hearing some very smart people that I really respect saying that Greenspan was done several times over the past year. They were wrong then, and I am not sure they are right now. In the category of “Be Careful What You Wish For”, Ned Davis Research just released a study this week that said the market is typically down in the 3 months, 6 months and 1 year following the end of an increasing rate cycle. According to their research on the S&P 500 since 1929, the market was down 64% of the time for the 1-year period after rates stopped rising. Even though I am leery of such statistics, it should give people a rational perspective to evaluate whether the market needs rates to stop for it to continue its upward trend. To me, the Davis research doesn’t guarantee the market will decline this year but then again…… what evidence do we have that rates are going to pause this year? AND to take an even more provocative stance, what assurance do we have that once Bernanke stops - that the next move will not be to raise rates once again?

What we all know is that the market and certain industries are definitely affected not only by what really happens to rates, but also what everyone hopes or expects will happen whether they are right or wrong. I am not suggesting to ignore rates, but I am suggesting that it’s nutty to put too much emphasis on it. We can go up or down regardless of the direction of rates - we’ve done it before and we’ll do it again.