This All Star Charts PLUS Monthly Playbook breaks down the investment universe into a series of binary decisions, tactical calls and asset allocation models.
The Fed announced another 75 basis point rate hike yesterday. The upper range of the Fed Funds rate began the year at 0.25% and is now 4.00%, the highest level since early 2008. In his post-FOMC press conference, Fed Chair Powell made clear that the Fed is not finished raising rates.
Why It Matters: As the prospects of rate hikes materialized earlier this year, there were plenty of assurances that stocks do well when the Fed is raising rates. These perspectives failed to distinguish between stock market behavior during gradual tightening cycles and accelerated tightening cycles. Stocks in the past have rallied into and during gradual tightening cycles, but have struggled to gain ground when the Fed has been more aggressive. While stocks have struggled in these accelerated rate hike regimes, commodities have tended to shine. The path for commodities during accelerated cycles is actually quite similar to the path for stocks during gradual cycles. With the S&P 500 down 20% and the CRB commodity index up 20% so far in 2022, we’ve seen those patterns play out in real time.
