One & Undone?

As noted, markets liked the soft jobs data, believing it makes an end to Fed hikes more likely sooner than later.

However, as much as investors are hoping for a "One & Done" scenario, history teaches us its more like "One & Undone for the markets."

There is a disconnect here; We’ve previously observed that once the Fed finishes, markets do not perform particularly well (See [1], [2], [3] and [4]). I have yet to see a convincing reason not to see that pattern continue.

Just in case you found these four prior discussions wanting (!), here are two more analyses along similar lines to digest:

The WSJ’s David A. Gaffen recently quoted an analysis from Bianco Research. Jim Bianco found that over the past 5 Fed
hiking cycles:

“Stocks do well during the tightening period, and mediocre
afterward. The S&P 500 index rose at least 6% in four of the five
tightening periods, with the February 1994 to February 1995 period being the
outlier, when stocks fell 0.5%. By contrast, in the four post-tightening
periods, Bianco says stocks have done well twice, and done poorly twice. The
two poor periods were late 1987, when the market crashed, and mid-2000 to early
2001, when it slowly deteriorated; the good times were in 1995 and 1989."

That is consistent with prior studies; it also make economic sense.  The Fed stops once they see proof of the economy slowing, which typically suggests weaker revenues and profits for companies. 

Next up, we go once again to TickerSense, where Paul and Justin look at the Average Performance of the average SPX during a full Fed cycle:


Hence, the surprising reaction over the past year to any evidence the economy has slowed so much the Fed fears it must halt tightening. 

If you are a Bull, you should be rooting for ongoing hikes, which should mean a robust economy and ongoing earnings growth.

Once the Fed stops, the party is typically over for the macro economy.

What's been said:

Discussions found on the web:
  1. Ned commented on May 5

    In other words, the Fed doesn’t put away the punch bowl until it is empty and all the drunks are heading for the parking lot. Look out below.

  2. Mike commented on May 5


    stupid S&P closed over 1318 🙁

  3. Martin commented on May 5

    What would Marty Zweig say about this claim?

  4. tom commented on May 5

    I have a lot of money (for me) in fidelity mutual funds like diversified, the contra fund, export & multinational, etc. What should I do? Sell and wait for the alleged “crash”? What should I do with my money?

  5. Robert Campbell commented on May 6

    Would someone explain to me why Central Banks throughout the globe are now hiking rates?

    It looks to me like everyone’s economies and markets are doing just fine. Why rock the boat?


  6. Mike commented on May 6

    Your take on the employment report is missing a key point of analysis.
    The average number of hours worked in a week increased from 33.8 hours to 33.9 hours. That increase translates to an additional 130,000 jobs added. As such, the employment report was quite strong and suggests that second quarter GDP will be at least 4%. It would be a significant mistake in error for the Fed to pause any time soon. Rates need to go higher to cool the economy and the inflation flames. In addition, it is imperative that the dollar be provided some underpinnings, and they are lacking now. We need funds to feed our daily deficits, and that need will soon approach $3 billion a day. A stronger dollar is required to attract foreign capital. Due to our deficits, there is a risk premium the investors want. I believe the sooner we get to 6% Fed funds the greater the opportunity to put our economy on a more stable basis. People cried we could not handle $3 gas. That has pinched the wallets of those on Main Street. It should be noted that 6% Fed rates are still relatively modest by all historical standards. It is time to clamp down on the excessive liquidity within our economic pipeline.

  7. Jay Walker commented on May 6


    In a word: inflation. It’s back, and could get worse. The central bankers job (main one anyway), so to keep inflation under control, so that economic activity can proceed without weird planning scenarios (i.e. what should we do if inflation kicks from 5% up to 10% – or 10% to 20%).

    The time to stop inflation is earlier, rather than later. Although it’s late in the day, in my view, it’s better late than never. The 1970s were no fun for workers or companies either. Inflation.

    Jay Walker
    The Confused Capitalist

  8. Cherry commented on May 6

    Mike, that was a weak jobs report and it didn’t include the last week of April which was the softest week in the month. Don’t give me that bs.

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