Will The Fed Hurt The S&P 500?

By: Brad_Gudgeon

Stock markets have had a very interesting year in 2015, and many investors have viewed some of the activity with a high degree of skepticism and uncertainty.  There are good reasons for this, as it has been very difficult to assess whether or not the US Federal Reserve is actually prepared to start raising interest rates.  Without solid information in this area, it can be difficult to start identify the true directional trend that is present in the market.  Luckily for investors, these scenarios have started to change. 

Rising Interest Rates

Since 2008, we have seen steady increases in the global economy.  This is significant because these types of events tend to create inflationary pressures that tend to worry central banks to the point that interest rates must be increase in order to maintain price stability.  It has been somewhat surprising that we have not seen the US Federal Reserve raise interest rates so far this year.  But this is a scenario that is not likely to last much longer.

Chart Source:  CornerTrader

In the chart above, we can see that steep declines in the S&P 500 during the summer months kept the Fed on guard and prevented the central bank from aggressively raising interest rates earlier in the year.  But we have already seen commentary from Fed Chairman Janet Yellen that suggest interest rates could be more than a full percentage point higher by the end of this year.

If this does actually come to fruition, actions by the central bank could make it very difficult for the S&P 500 to gain significant traction in the early parts of next year.  Of course, the Fed does not want to bring too much instability to stocks by raising interest rates aggressively, so the real question going forward will be the extent to which the Fed is able to raise rates and still hold within its own predetermined comfort zone. 

For investors, this means that some of the most important financial news headlines of next year will rest on the shoulders of the voting members at the US Federal Reserve.  There are still opposing views with respect to how exactly policy changes will start to unfold.  Any decision to keep rates on hold will likely be met by significant buying positions in global equities and in the S&P 500 in particular.  For these reasons, investors might need to wait in order to assess the true financial environment before moving into longer-term positions. 

By Richard Cox

© 2015 Richard Cox - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.