The Week Ahead: Don’t Get Fooled Again

The stock market correction started after the very strong jobs report on March 6. It paused last Thursday when stocks rebounded sharply. The resumption of selling on Friday indicates that the market decline is not yet over. We could still form a v-shaped bottom next week but it will take several consecutive sharply higher days like last Thursday to complete the market’s correction.

The widely attributed reason for the market’s decline is the belief that the FOMC will change the wording of their announcement next week. This?many feel?will increase the odds of a rate hike in June.

The stock market turned around just after the FOMC announcements last December and January, so we could see a repeat of this Wednesday. Each of the market declines?on the concerns over higher rates?has provided a good opportunity to buy market leading stocks. So, my message to investors now is don’t get fooled again.

Many investors are convinced that higher rates are always negative for the stock market. In a 2013 article, Rob Brown, the chief investment strategist for United Capital Financial Advisers LLC, looked at those 16 periods of economic expansions (12 months or longer) since 1919 when interest rates rose the most. He found that ?81% of the 12-month windows of most rapid interest rate increase delivered positive S&P returns.?

Furthermore, he pointed out that ?when interest rates are rising most rapidly during an economic expansion, this also corresponds with significant economic growth and increasing corporate profits and generally occurs in the middle of economic expansion phases (as opposed to at their end).?