Stop Being Afraid of Rate Hikes

TVC:DJI   Dow Jones Industrial Average Index
TLDR: Rate hikes do not hurt the markets

This chart clearly shows that the Fed raising rates does not cause market crashed. There is a narrative circulating right now that when the Fed raises rates the market is finally going to pull back worse than ever. There is no precedent for this in the last 20 years.

4 scenarios are shown:
  • Owning the Dow only when the Fed is cutting rates
  • Owning the Dow only when the Fed is raising rates
  • Owning the Dow only when the Fed is holding steady
  • Owning the Dow all except while the Fed is cutting rates

The results reveal that your return over each case will be:
  • Cutting: -52% or a CAGR of -3.6%
  • Raising: +339% or a CAGR of +7.7%
  • Holding: +57% or a CAGR of +2.3%
  • Raising or Holding: 590% or a CAGR of +9.3%

Clearly, the market is not concerned when the Fed raises rates. Over the entire 20-year period, the Dow was up 232% or a CAGR of 6.2%. To Illustrate the effect of this over the entire period here is the result of $100,000 in each:
  • Dow: $331,519
  • Cutting: $48,311
  • Raising: $157,324
  • Holding: $438,877
  • Raising or Holding: $590,461

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