Goldman thinks there aren't many Fed hikes left. Stocks could rally
Source
Investors may not have to worry about Federal Reserve rate hikes for much longer, according to Goldman Sachs. Macro strategist Vickie Chang noted the market is pricing just three additional rate increases from the central bank, while Goldman economists largely see just one more hike ahead. If either of those scenarios play out, they would mark one of the smallest rate-hiking cycles going back to 1983, Chang said. She pointed out that the Fed hiked just 25 basis points in both March 1997 and December 2015, as well as 175 bps between June 1999 and May 2000. One basis point equals 0.01%, or 1/100th of 1%. If the central bank hikes by a quarter-percentage point three more times, it would lift the Fed's target rate by about 100 bps from where this cycle began. If it's just once more, that would mark tightening of just 50 basis points. Such small policy tightening could mean good news for stocks, based on the previous "small" rate hiking periods, Chang said. "The two one-hike cycles of 1997 and 2015 are the closest to our own expectations for this cycle in terms of the amount of cumulative tightening," she said in a note to clients. "Equities fell initially in both cycles but troughed quickly in 1997 and rallied strongly. Equities troughed within two months of the first hike in 2015 but took longer than in 1997 to recover to pre-hike levels and performance was much more rangebound." The S & P 500 surged 34% in the year following the 1997 rate increase and advanced about 9% in the 12 months following the 2015 hike. The benchmark also rose 9% during the June 1999-May 2000 period. "The broader macro context of a hiking cycle into an ongoing investment boom shares some obvious features with 1999, although the macro imbalances present then are generally less visible now," Chang added. "The market expects a more extended series of hikes than in 1997 and 2015, although short of the 175bps delivered in 1999."