New Column up at Real Money (08/10/06)


Norm Conley of the The and I were discussing the Market reaction post Fed, and we each were wondering why 1980 seems to be such an interesting dividing line.

I’ve been tracking a lot of research in this area, and I summarize the conclusions in a new column today: When the Fed Stops Tightening. Here’s an excerpt:

"1980 seems to be a dividing line when it comes to the Fed. In the majority of cases from 1980 forward, markets did rather well after the Fed finished. Prior to that year, markets were generally lower six and 12 months after a tightening cycle ended.
In October 1982, the Fed shifted its emphasis from money-supply measures and "nonborrowed reserves" to an explicit fed funds rate-targeting procedure. That could very well be part of the basis for the change in results after Fed tightening ends. (See: When Did the FOMC Begin Targeting the Federal Funds Rate? for more detail.)

My conclusion is that the context of the Fed hiking cycle is what matters most to markets. During secular bull markets, Fed tightening seems to cool inflation and allows markets to keep rising. During bear periods, the Fed cycle seems to stop just before a major economic slowdown begins. The decrease in revenues and earnings then pressures equity prices.

Let’s examine some of these other studies. InvesTech Research looked at market performance over the following three, six and 12 months after the end of a tightening cycle, from 1929 to 2000 . . ."

More on this tomorrow . . .


When the Fed Stops Tightening
Barry Ritholtz, 8/10/2006 9:14 AM EDT

Category: Data Analysis, Federal Reserve, Inflation, Investing, Markets, Psychology

Market Behavior after the Fed Finishes

Category: Federal Reserve, Markets, Technical Analysis

Monitor Lust

Category: Technology

To the Pink Sheets! Tradesports’ Bad Call

Category: Data Analysis, Markets, Psychology

Trannies Begin New Leg Down

Category: Economy, Markets, Technical Analysis

the Pregnant Pause

Category: Federal Reserve, Investing, Markets, Real Estate, RR&A, Trading

Beware Periods of Crisis Post Fed

Category: Federal Reserve, Fixed Income/Interest Rates, Inflation, Markets, Psychology

Fed Funds: Typical Cycle

Category: Federal Reserve, Technical Analysis

Parsing the Fed Statement

Category: Federal Reserve

The Dovish Pause

Category: Federal Reserve