Value stocks tend to outperform around the first rate hike
Goldman Sachs noted that with the Federal Reserve widely expected to begin its interest rate hike cycle in March, stock investors should prepare for relatively low returns in the coming months.
In recent Fed rate hikes, the S&P fell an average of 6 per cent within three months of the first rate increase. However, within six months of the first rate increase, returns would return 5%.
Fed rate hikes tend to start with a strong economy, helping to boost stocks in cyclical sectors such as materials, industrials and energy, while value stocks also outperform in the months before and after the first rate hike.
High-quality stocks with high margins or strong balance sheets underperformed in a strong economic environment before the rate hike, but outperformed in the months after the first rate hike. Meanwhile, highly valued growth stocks tend to perform worst in the six months around the first rate hike.
Wedbush Securities said a volatile start to the year will take some of the momentum out of technology and growth stocks, and that some of those high-valued investments that did well when money was cheap are now bound to be re-evaluated.
But such cooling, though difficult, will ultimately be good for stocks, and he expects value stocks to continue to outperform this year.
$S&P 500 Index(.SPX.US$ $Nasdaq Composite Index(.IXIC.US$ $Dow Jones Industrial Average(.DJI.US$ $Bank of America(BAC.US$ $Wells Fargo & Co(WFC.US$ $Morgan Stanley(MS.US$ $Goldman Sachs(GS.US$ $JPMorgan(JPM.US$ $GE Aerospace(GE.US$ $Procter & Gamble(PG.US$ $Pfizer(PFE.US$ $Johnson & Johnson(JNJ.US$ $American Airlines(AAL.US$
But such cooling, though difficult, will ultimately be good for stocks, and he expects value stocks to continue to outperform this year.
$S&P 500 Index(.SPX.US$ $Nasdaq Composite Index(.IXIC.US$ $Dow Jones Industrial Average(.DJI.US$ $Bank of America(BAC.US$ $Wells Fargo & Co(WFC.US$ $Morgan Stanley(MS.US$ $Goldman Sachs(GS.US$ $JPMorgan(JPM.US$ $GE Aerospace(GE.US$ $Procter & Gamble(PG.US$ $Pfizer(PFE.US$ $Johnson & Johnson(JNJ.US$ $American Airlines(AAL.US$
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