posted at 03:00
Author Name: Henry Blodget
Stock Market Fed Tightening
If you limit your definition of "Tightening" to "Raising interest rates," the Fed is not yet tightening. In the past, it has arguably been the change in direction of Fed money-pumping that has been important to the stock market, not the absolute level. In the past, major changes in direction of Fed money-pumping have often been followed by changes in direction of stock prices. In many of these time periods, you'll see that sustained Fed tightening has often been followed by a decline in stock prices. The Fed started tightening in 1976, at which point the market declined and then flattened for four years. One of the oldest sayings on Wall Street is "Don't fight the Fed." This saying has meaning in both directions, when the Fed is easing and when it is tightening. On the positive side, the Fed's tightening phases have often lasted a year or two before stock prices peaked and began to drop. So even if you're convinced that sustained Fed tightening is now likely to lead to a sharp stock-price pullback at some point, the bull market might still have a ways to run.

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