U.S. Stocks on Wrong Side of History With Rate Rise in Sight
THIS COULD BE PROFOUND
Never before has a rally in the U.S. stock market gone on this long without a Federal Reserve interest-rate increase. Expecting valuations to keep rising once one comes is asking too much, if history is any guide.
While Standard & Poor’s 500 Index price-earnings ratios are far from records, they’ve shown no ability to expand after the U.S. central bank starts raising rates, according to data compiled by Goldman Sachs Group Inc. and Bloomberg. In the quarter after the last 12 tightening cycles began, P/Es contracted by an average of 7.2 percent.
It’s something else to worry about as the Fed prepares to lift rates in an economy that is still far from booming. Should policy makers move before January, they would be doing so in a year when U.S. profits are forecast by analysts to increase 1.4 percent. That represents the weakest growth at the start of a tightening cycle since 1980. Read & Watch More
Writing On The Proverbial Wall
