Many investors are concerned that when the Federal Reserve finally raises interest rates — many economists expect the first move around mid-2015 — stocks will tumble.
"If history is any guide, however, rising rates should also mean rising stocks," writes
MarketWatch columnist Jeff Reeves.
The early period of Fed rate hikes often does see stocks slide, as does the period right after rates are lowered, he says.
But, "the period in the middle, when rates are steadily rising and the Fed is consistently in a tightening mode, is almost always great for stocks," Reeves writes.
"In fact, those years of consistently increasing rates are some of the best in the history of the S&P 500 index."
For example, the Fed lifted the federal funds rate from 1.2 percent in 1961 to 9.2 percent in August 1969, Reeves notes. The S&P 500 rose in six of those nine years, and all the annual gains exceeded 10 percent.
Stocks also rose from 1986 to 1989 and from 2004 to 2007 when the Fed was tightening, Reeves says.
"With consistent and reliable increases in interest rates, there seems to be no reason to expect stocks to slump," he adds.
Meanwhile, one ramification of Fed rate increases that hasn't received much attention is that the government will have to pay higher interest rates on new debt, lifting the overall debt burden.
The federal government's debt now totals $17.8 trillion.
"The Fed's ultra-low interest-rate policy has helped limit the pain . . . by limiting the damage from interest expenses," Anthony Mirhaydari, founder of Mirhaydari Capital Management, writes in
The Fiscal Times.
"But with monetary policy on track to normalize, . . . the costs of carrying so much debt are about rise."
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