Dividends4Life: Rate Hikes Are Good News For Stocks

Rate Hikes Are Good News For Stocks

Posted by D4L | Tuesday, October 14, 2014 | | 0 comments »

It's no surprise that the prospect of a Federal Reserve rate hike worries stock investors. The Fed's unprecedented economic stimulus has in large part driven a surge in stock prices since 2009. The central bank has bought trillions of dollars of bonds and kept short-term interest rates close to zero. That's allowed businesses and consumers to refinance their debt at lower rates, freeing up cash to spend. But if history is a guide, investors have nothing to fear.

In the nine instances since 1955 that the Fed has started raising rates after a recession, the Standard & Poor's 500 index has risen by an average of 58 percent between the first hike and the peak of the market, according to LPL Financial, an independent broker-dealer based in Boston. The Fed is set to end its bond purchases in October and most economists expect the first short-term rate hike by mid-2015. These early increases, analysts say, are unlikely to derail the current bull market for stocks, because the Fed would be raising rates in response to a growing economy. Manufacturing expanded in August at the strongest pace in more than three years. Hiring is also picking up, along with consumer confidence.

Source: abc27.com

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