NFTRH; Short and Long-term Market and General Sector Performance, Post-Rate Hike and Technical Update

From the Quantifiable Edges blog (linked at both and if you ever want to reference it) comes this interesting ‘quant’ of what happens after the Fed begins hiking rates.  Going back to 1990 there have been four other cycles and the SPX has been lower after 1 month (post hike) in every case.  1 year later returns were higher every time.

quant edges fed rate hike

So this actually fits well with our market outlook, which is bearish on the intermediate-term.  Considering that the market has been rolling over in many aspects since mid-summer, it has already been an intermediate-term phase of market weakness (and volatility).  The ‘quant’ says it can continue.

Here is the chart that correlates the SPX and the Fed Funds controlled T-Bill yield over the last 2 cycles.  The stock market has risen with the T-Bill and Funds rate for a period measured in years.  This is just a reminder that in relatively normal circumstances the market goes up with rates first, before crashing later.  I would still add a strong opinion that this cycle has been anything but normal (see red dotted line).

irx and spx weekly chart

There are no absolutes in markets (which is why I take ‘quant’ like the above for what it is and with the tiniest grain of salt) but for the bulls, I want to pass along a Citi graphic of sectors that tend under and out perform when interest rates are rising.

sectors as yields rise

It is not even a given that we are in a rate hike cycle of any lasting significance.  However, the more I think about the situation the more I think the Fed sees the likes of ‘sticky costs’ per a public post yesterday, as potentially breaking out of the inflationary barn and they are trying to get out in front of it.

Back on the technicals, we have been using daily charts along with SPX and RUT weeklies to maintain the bear view.  Here is another weekly chart we used a while back that has not repaired any of the technical damage inflicted upon the indexes in the lower panels despite this week’s bounce.  NDX, while not very inspiring, has not turned down like the others.  Those lower panels are some ugly charts.

us indexes

Today the market is having second thoughts about its post-FOMC euphoria and this is in line with the preferred view as the SPX rounding top remained in place and the RUT was bearish, as reviewed yesterday.

Just some more observations as we move through the process.