Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Dividend Aristocrat Is Leading the 5G Revolution - 22nd July 19
What the World Doesn’t Need Now is Lower Interest Rates - 22nd July 19
My Biggest 'Fear' For Silver - 22nd July 19
Reasons to Buy Pre-Owned Luxury Car from a Certified Dealer - 22nd July 19
Stock Market Increasing Technical Weakness - 22nd July 19
What Could The Next Gold Rally Look Like? - 22nd July 19
Stock Markets Setting Up For A Volatility Explosion – Are You Ready? - 22nd July 19
Anatomy of an Impulse Move in Gold and Silver Precious Metals - 22nd July 19
What you Really need to Know about the Stock Market - 22nd July 19
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Stock Market Sectors, Does Anyone Win With an Interest Rate Hike?

Stock-Markets / Sector Analysis Sep 16, 2015 - 05:09 PM GMT

By: Investment_U

Stock-Markets

Matthew Carr writes: Editorial Note: It’s the big moment investors have been waiting for. As we write, the Fed is meeting to decide if it will raise interest rates for the first time since 2006. And while there won’t be any official announcement until Thursday, folks are understandably on edge. But should you be?

We asked Matthew Carr to do what he does best - to sift through decades of market data and uncover the real effect of rate hikes on stocks. We hope you enjoy his commentary. And afterward, if you’re still worried, click here to see how our Chief Investment Strategist Alexander Green is preparing Oxford Club Members for the end of the bull market.


We’ve had a wobbly few weeks...

There are a number of issues forming dark clouds over the market: China’s economy slowing down... ongoing uncertainty over U.S. growth... another possible government shutdown...

And, of course, the Federal Reserve possibly raising rates.

It’s a lot for investors to take in. And uncertainty is always the biggest weight on market performance. We’re dealing with a myriad of possibilities right now - but few realities.

So let’s just deal with the most pressing issue and what it might mean for investors: the Fed rate hike.

Back in April, I wrote a piece about the best-performing sectors of the market during the six months leading up to a rate hike.

Let’s take a quick look at how those sectors have fared in the most recent six-month period...

Not surprisingly, everything is in the red. But the top-performing sectors - as judged by their respective sector ETFs - have been Consumer Discretionary (XLY), Healthcare (XLV), Financials (XLF) and Technology (XLK). All four, as well as Consumer Staples (XLP), are outperforming the S&P 500, which means that, at this point, they haven’t lost as much in the last six months as the broader market has.

Now, historically, the best sectors to own right before the Fed raises rates have been Energy, Materials, Industrials and Information Technology...

But that hasn’t been the case this year. In fact, Industrials, Basic Materials and Energy are by far the worst performers. The collapse in crude and the strengthening U.S. dollar, as well as slowing demand from China for a broad spectrum of resources, has gutted these sectors in 2015.

The current situation is outside the norm.

The closest comparable in recent years is 1994. I find that fascinating because of the parallels unfolding today and the Fed rate hike during that year.

We had a recession in the early ‘90s. We had the largest Asian economy at that time - Japan - slowing. Another similarity? China devalued its currency. And the U.S. Fed raised rates to stem inflation - which led to a stronger dollar.

It’s eerie.

All of this ultimately culminated in the Asian financial crisis of 1997 to 1998, as well as the “Russian Flu” that unfolded in August 1998.

Fast-forward to this year. Asia’s largest economy is slowing. And it’s interesting that in August, China’s currency had a surprise devaluation with a Fed rate hike looming.

From Bad to Worse

Now, historically, in the six months following a rate increase, these have been the best-performing sectors: Consumer Discretionary, Utilities, Information Technology and Industrials.

As you can see, Information Technology is strongest, gaining an average of 16.12%.

At the same time, Energy, Healthcare, Consumer Staples, Financials and Materials all struggle.

When the Fed raises rates, it typically strengthens the U.S. dollar. That’s bad news for commodities priced in greenbacks (crude, gold, raw materials, etc.). So that makes the possibility of a rate increase even bleaker for the Energy and Materials sectors.

On top of that, the energy sector currently has about $200 billion in high-yield debt. That’s up more than 200% from $65.6 billion in 2007. And bonds issued by oil and gas companies globally are up 10% over last year.

Falling crude prices, lower revenue and tumbling share prices have launched the energy sector’s debt-to-equity ratio to new heights. (Though it’s worth noting that this is more of an issue for smaller companies than major producers and refiners.)

Think that’s bad? The S&P Basic Materials index has a current debt-to-equity ratio more than double that of the energy sector.

So, it’s hard to imagine the situation for these companies improving in the short term.

Technology still seems to be the best bet, with the Nasdaq the only index positive so far this year. And consumer discretionary is good - especially as we head into the holiday season.

Up until August, the markets were at least flat for the year, with tech and biotech stocks on the Nasdaq performing fairly well. But there were too many unknowns that came to a head in the past month and the market crumpled under the pressure.

Will the Fed raise rates this week? No one is certain. Brazil and Russia are in recessions... China is still growing, but at a slower pace... commodity-dependent economies around the world have been bruised by lower crude prices and the stronger dollar.

Considering all these factors, I could see a rate hike being put off. But we’ll know for certain tomorrow.

The bright side is, a year after the Fed raises rates, it’s a field of green - all sectors are positive. Consumers and savers are doing better... retirees are pocketing more...

But until more of these unknowns become knowns, the markets should remain a wild ride.

Good investing,

Matthew

Source: http://www.investmentu.com/article/detail/47589/fed-fomc-does-anyone-win-with-interest-rate-hike#.Vfmt6U3bK0k

http://www.investmentu.com

Copyright © 1999 - 2015 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules