With the stock market tanking and the Federal Reserve finally starting to raise interest rates and reduce its $9 trillion balance sheet, it's probably a good time to look back and determine how much of the stock market's gains in the past 12 years or so have been built on extremely accommodative Fed monetary policy. That could provide some idea of how much we can expect the market to drop once the Fed has finally stopped the tightening process, and when stocks might start rising again.
Since reaching its all-time high of 16,057 back on November 15, the NASDAQ had dropped nearly 29% as of May 18, when it closed at 11,418. Likewise, the S&P 500 is down nearly 18% since it hit its all-time high on December 27, while the Dow is off more than 13% after reaching its peak on that same day.
Those declines followed several indications from Fed Chair Jerome Powell and other Fed officials that the central bank had finally conceded that inflation wasn't "transitory" after all and that it had to act aggressively before inflation got totally out of control.
The Fed raised its benchmark interest rate by 25 basis points on March 16, its first rate increase since December 2018, and another 50 bps on May 4, its largest increase since May 2000. The Fed's next meeting is scheduled for the middle of next month, at which it is expected to vote for another 50-bp hike, followed by several more by the end of the year. If the Fed raises rates by 50 bps at each of its next five meetings, including the one right before Election Day, that will push its benchmark rate to Continue reading "The Fed Giveth, The Fed Taketh Away"