Zero Hedge: “Don’t Fight The Fed, 1994 Edition”

Excerpt from Zero Hedge picking up a recent DataTrek Report:

…. “How much is 2018 like 1994? The most notable common factor: a US Federal Reserve regularly hiking interest rates with no end in sight. After that, the story gets complicated. We were in the business in 1994; our full thoughts on this “then and now” comparison below.

One of the most vivid recollections I have after 30 years on Wall Street is April 18th 1994. I covered the auto industry for Credit Suisse at the time, and everything I had recommended over the last 3 years had gone straight up. But on that day, the Fed hiked rates for the third time that year – 75 bp in total since January. All of a sudden, cyclicals were out of fashion. And no one wanted to hear about autos.

Things didn’t get any better for the remainder of the year. The Fed went again in May and August, by 50 basis points each. Then the capper… A 75 bp move in November. For the year as a whole, Fed Funds rose from 3.0% to 5.5%. Needless to say, auto stocks had a rough time.

Since it has become fashionable to compare markets today to 1994 given the Fed’s more aggressive posture of late, let’s dig a little deeper into the analogy. A few points here:

#1. US stocks were actually higher on the year in 1994, but barely so. On a price basis, the S&P 500 declined by 1.5%, but dividends brought the total return to 1.3%.

#2. The rapid-fire increases in Fed Funds allowed the central bank to essentially go on hold from 1995 to 1999. Rates peaked at 6.0% in April/May 1995. After that they remained range-bound between 4.6% and 6.0% until April 2000″…..

Read the whole piece here on Zero Hedge!

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