Bull Market is Always Born in Pessimism! Key to Survive After Rate Hike!

$DJIA(.DJI)$ fell 0.30% to 32,899.37 on Friday, extending Thursday's losses. $NASDAQ(.IXIC)$ was down 1.40% at 12,144.66;  $S&P 500(.SPX)$ was down 0.57 % at 4,123.34.

Why Market Plummeted? Joining the Vote of 8 Biggest Factors!

Weekly Recap: Energy Sector Top the Increase By 7.4%, Will Trend Continues?

A share and Hong Kong stocks also fell sharply. $SSE Comp(000001.SH)$ fell 2.16% to close at 3,001.56, only one step below 3000. $SZSE Comp(399001)$ fell 2.14%,$ChiNext(399006)$ fell 1.90%. $HSI(HSI)$ was down 3.81% at 2,001.96, while $HSTECH(HSTECH)$ was down 5.23%.

Some market analysts believe that the Fed's interest rate hike and balance sheet reduction decision causing the turbulence in the US stock market and global market.

The Fed's decision to raise interest rates is not a sudden, and Powell has given preventive shots many times. Let's learn from history today to see how the index performs after raising interest rates?

Figure 1: The $S&P 500(.SPX)$ Overall Performances During Fed Rate-hike Cycles

Truist Advisory Services' analysis of a total of 12 rate-hike cycles found that the S&P 500 had an average annualized return of 9.4% during those cycles, with 11 of them showing positive returns.​

Figure 2: The $S&P 500(.SPX)$Performance in the First Year of a Fed Rate-hiking Cycle

The red dots represent the first rate increase in the Fed's cycle. As you can see from the chart below, the worst performance since 1994 has been two or three months after the first rate increase. Basically from the first interest rate hike half a year, the S&P 500 trend has significantly improved; In the year after raising rates, there were only three negative returns. (Photo by @Alan聊特斯拉 )

​An analysis of four rate-raising cycles by Evercore ISI found that the S&P 500 fell by an average of 4% in the first month of the cycle, was up 3% in the sixth month and % in the 12-month period.

Figure 3: The Performance of Various Sectors in the Rate Hike Cycle

Within sectors, energy is the best performer, with positive returns of 15.7% a year later. By contrast, the medical profession may be more of a test of psychological endurance. Value stocks have fared better than cyclical stocks, up nearly 15% over the year.

To be sure, higher interest rates do weigh on stocks in the short term. But it is doubtful that a rate hike will necessarily lead to a fall in the stock market.

John Templeton, known as the "father of global investment" and "one of the most successful fund managers of all time", has a famous saying:

"Bull markets are always born in pessimism, grow in doubt, mature in optimism and die in excitement. The most pessimistic times are the best times to buy, and the most optimistic times are the best times to sell."

As @FlowingCash put it: "Good years always pop up in the midst of pessimism."

Finally, here's what you think the stock market is going to do:

  • How do you think the interest rate hike will affect the stock market?
  • When do you think the stock market will adjust in the future?

Tiger coins is ready, welcome to speak freely ~

# 💰 Stocks to watch today?(29 Mar)

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  • Boo2020
    ·2022-05-07
    first the market will fall in response the rate hike, then few months later, market will rise after company report with better earnings after adjustment to inflation. just guessing!
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  • BenjiFuji
    ·2022-05-07
    I think that the short term, the stock market will be priced lower. Mid-long term the market will grow. I am guessing that the short term down trend in 2022-23, rebounding 2024.
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  • Doge2theMoon
    ·2022-05-07
    Stock market got a massive liquidity pump from the Fed. That pump is a suction now. Stocks will be hit hard. Follow the bond market.
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  • RDPD富爸穷爸
    ·2022-05-07
    Interest rate hike will kill off businesses with huge debt and loss making companies. Most of them already drop between 50-80% since Nov 2021. Because of FUD, the profitable ones got sold off along
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    • RDPD富爸穷爸
      with it. Yes, eventually people will come to the realization that it was an over-reaction and stock market will recover as it always does.
      2022-05-07
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  • chaicka
    ·2022-05-07
    Interest Rate Hikes + QT are just trigger attributes for inevitable ‘bubble popping’ given last 1+ year of extreme forward PE levels. Repositioning & Strategic adjust on strong biz & sunshine awaits.
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  • Khikho
    ·2022-05-07
    Truist Advisory Services对总共12个加息周期的分析发现,在这些周期中,标准普尔500指数的平均年化回报率为9.4%,其中11个为正回报。
    美好的岁月总是在不经意间出现[微笑][微笑][微笑]
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  • Success88
    ·2022-05-07
    Interest hike soon will be a norm. People need thing will still shop, so it just a temporary set back for stock. Stock will back to bull soon @Mainstreet_Trades
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  • Kaixiang
    ·2022-05-07
    Not all companies will thrive in high inflation/interest rate Those with low pricing power will have higher cost eating into their margins, while higher i/r will hit those with high debt.
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    • ___ _
      tqq
      2022-05-07
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    • DiAngelReplying toKaixiang
      Thanks
      2022-05-07
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    • HelenJanet
      Thanks for sharing 👍😊
      2022-05-07
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  • MHh
    ·2022-05-07
    It’s the REPEATED rate hikes that will bring prices down due to fear of stagflation or recession. Might have some brief rallies when people buy the dips.Long term, market will rise
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    • pennylksReplying toMHh
      need some adjustment before it continue to rocket up [Cool]
      2022-05-07
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    • MHhReplying toDiAngel
      [Grin]
      2022-05-07
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    • MHhReplying topennylks
      [Grin]
      2022-05-07
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  • SR050321
    ·2022-05-07
    Interest hike make people who use margin think twice to buy big qty, meaning volume down, when volume down, due to less demand, stock price go down. We have to wait n see FED action this year to know
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    • SR050321
      to know when stock market will
      adjust, hopefully 2023 we will start to see the adjustment 👍
      2022-05-07
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  • ToughCoyote
    ·2022-05-07
    Interest rate hikes affect compqnies badly who needs to burrow from the market to survive. Repeated hikes generates fear and people sell off stocks even for good companies and this brings market down
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    • ToughCoyote
      Always next year is great time to bring market up ….
      2022-05-07
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  • pekss
    ·2022-05-07
    Rate hikes will affect growth stocks like tech companies more than value stocks, as the former may not be profitable yet, with distant cash flows discounted more heavily and susceptible to devaluation
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    • ngph
      Indeed, growth stocks will be more susceptible to sell-off on risk-off
      2022-05-07
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  • ngph
    ·2022-05-07
    It depends on how agressive the hiking will be. The economy is strong enough to withstand some rate normalization, but excessive hikes may trigger a hard-landing of the economy, crashing the market
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  • Big Cat
    ·2022-05-07
    I think interest rate hike will affect the stock market negatively = bear 🐻 market.
    However, in the "long-term"... it will adjust itself back to the bull 🐂 market (future) [Grin].
    How long = [Doubt]
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  • ___ _
    ·2022-05-07
    I think the market has already priced in the hike.  It should improve anytime now.  I predict Mr Market will jitter around future FOMC meetings in worry of the next hike announcement though. 
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    • JackytanReplying to___ _
      agree
      2022-05-08
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    • ___ _
      Other than that,  there should be relief mini rallies here and there.
      2022-05-07
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  • Pluto891
    ·2022-05-07
    hike means drop and then rebound. But decline is a given. Cos the mkt has risen so much. Reverse to mean is coming
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  • lappiloco
    ·2022-05-08
    looks like the increase rates will hit hard on the market, and will only be better in 2024
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  • Chilli Padi
    ·2022-05-08
    The stock market is hardest hit prior to interest rate hike as seen 2X in 2022. As there is further hike this yr, the market will remain bearish. Recovery is likely in 2nd half of 2023 if no war break
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  • SG 88
    ·2022-05-08
    I believe its exciting year 2022 year. Sea of red brings about opportunity of buying great company at a discount. The worrying part is what to allocate given my limited fundings availability [Wow]
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  • Wayneqq
    ·2022-05-08
    Hard to predict what the future is.. market had ran up a lot since the covid crash.. so it is a natural cycle of coming back down to the mean... i believe we still have some way down before reversing
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