One more from Tim Duy:
Implications of Fed Tightening for Equities, by Tim Duy: Thinking further
about this from Friday's Jon Hilsenrath
Wall Street Journal article:
Stocks and bond markets have taken off since the Fed announced in
September that it would ramp up the bond-buying program, and major indexes
closed at another record Friday. An abrupt or surprising end to it could
send stocks and bonds in the other direction, but a delayed end could allow
markets to overheat. And some officials feel they've ended other programs
too soon and don't want to repeat the mistake.
Although past performance is no guarantee of future performance, it strikes
me that previous instances of tighter monetary policy did not trigger immediate
widespread declines in equities:
Just an eyeball look at past behavior suggests that equities are mostly flat
in the initial stages of monetary tightening, and rise in later stages. Generally at least two years before the Fed inverts the yield curve and
triggers recession. In addition, we are not expecting the Fed to begin
raising rates until late 2014 or 2015. So policy is likely to remain
supportive for what, at least three or four more years?
Fears of an imminent policy-driven collapse in equity prices are likely
greatly over-exaggerated. See also Mark Dow
here.
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