The Federal Reserve’s (Fed) decision not to raise interest rates at its September 17 policy meeting was undoubtedly the biggest event of last week. Although not a big surprise, besides Donald Trump (and perhaps China), the Fed is all that anyone is talking about these days. This week we share some of our perspective on what the Fed’s decision may mean for the stock market and offer some investment ideas.
All else equal, whether the Fed hikes rates now or three months from now should not matter too much for global financial markets. The move — when it comes — will likely be just 25 basis points (0.25%) based on recent communication from the Fed. In Fed Chair Yellen’s September 17, 2015, press conference, she indicated, “And once we begin to remove policy accommodation, we continue to expect that economic conditions will evolve in a manner that will warrant only gradual increases in the target federal funds rate.” Historically, gradual increases have been 25 basis points. We do not anticipate big moves in the interest rates that impact consumer and business borrowing costs, whether the Fed had hiked in September 2015 or waits until October 2015, December 2015, January 2016, or even March 2016. And while we acknowledge that Fed stimulus and low interest rates have played a role in fueling the now six-and-a-half-year-old bull market, we argue that earnings growth has been a far bigger factor…. To continue reading please click the link below.