Don't Fight the Fed: Interest Rates and their Impact on the Stock Market

by Sam Stovall

Don't Fight The Fed: Interest Rates And Their Impact On The Stock Market Splash image

I have frequently been asked, “What is the one thing an investor should monitor in order to gauge the health of the economy and the direction of the stock market?”

My response is “interest rates.” The mandate of the Federal Reserve is twofold: to promote economic growth and to keep inflation under control.

Think of it this way. If the economy were a car, the Fed’s responsibility as a driver would be to maintain a safe speed. If the Fed wanted to speed things up, then they would step on the gas by lowering interest rates. To slow things down, however, the Fed would need to tap or even slam on the brakes by raising interest rates and reducing the availability of capital.

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Sam Stovall , chief equity strategist of S&P Capital IQ, serves as chairman of the S&P Investment Policy Committee. He is the author of the books, "The Seven Rules of Wall Street" (McGraw-Hill, 2009) and “The Standard & Poor’s Guide to Sector Investing” (McGraw-Hill, 1995). He writes a weekly investment piece on S&P’s MarketScope Advisor platform ( focusing on market and sector history, as well as industry momentum..


Stephen from California posted over 3 years ago:

Excellent, high-level article by a pro who's been around for years.

Edgar Koshatka from Pennsylvania posted 4 months ago:

I have to continually intone one of my favorite adages when I read this kind of material: "History does not repeat; only the experts repeat."
Another one I like is: "Anyone who has concluded that the stock market is rational is the most irrational person in the room."
Well, at least Mr. Stovall put in the disclaimer, and the print size was the same as the rest of the text: "Should this equity market recovery be similar to prior recoveries - AND THERE'S NO GUARANTEE IT WILL-........" Those are the most important words in the article.

Jay Lagree from Delaware posted 4 months ago:

Great Article!

@Edgar Koshatka.....The most often repeated falsehood in investing: This time it's different.

Calford Scott from New York posted 3 months ago:

When was this Article written. I am reading it 01/012014. It does not seem to apply to today

Jonathan Niles from Colorado posted 3 months ago:

I'm seeing May 2009 for a date on my page - and the market cycle discussion seems about right for that time too...

Larry Hutcheson from Indiana posted 3 months ago:

Recycle an old article? Okay, but does the average reader know how to use this as a framework for today or tomorrow. Great evidence and evaluation but could on updated paragraph be added for clarification?

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