The Beginning of a Tightening Cycle?

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by: TickerSense

Last week the Fed raised the discount rate from 0.50% to 0.75%. Prior to 1984 the discount rate was the primary tool for rate policy, since 1984 they have used the Fed Funds rate. The current survey of economists by Bloomberg forecasts a Fed Funds rate hike in the third quarter of 2010.

Fed Target Rate

Fed rate tightenings

In the six months after a tightening cycle began oil has had the largest gains (average 17%). The S&P 500 gains on average 3%. Technology, health care, and materials lead the sectors and utilities, telecom, and industrials lag.

Performance Before & After a Tightening Cycle

Performance before & after tightening cycle

Both the dollar and the 10-year treasury declined after the first hike. The dollar index falls 2.9% in the six months after. 10-year treasuries fall 7.6%.

Market Composite Before/After First Rate Increase

S&P 500 composite

10y composite

Gold composite

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