After the Fed raises interest rates, should I buy tech stocks or financial and real estate stocks?
Investors shouldn't rush out to buy right away. If things develop historically, they should wait a few weeks before making a move.
Bond trader Jeffrey Gundlach said that the pressure on banks will not stop until the Fed starts cutting interest rates.
Mike O'Rourke, chief market strategist at Jononestrading, said he was "shocked" that Powell is now "facing two rate hikes in the face of massive bank bankruptcies." While these challenges are far less severe than in 2008, caution is still more important than bravery.
O'Rourke studied the total return on the day of rate hikes during the Fed's rate hike cycle from 1984 to 2018. "On average, the stock market will fall on the first day after the last rate hike. The situation gets worse on the second day. On the third day, it falls a little more."
But on the fourth day, the market stops falling, and two weeks later, the stock market rises, which means that investors only need a few days to digest the impact of the rate hike and then start investing again.
Looking further ahead, the situation is not bad at all, as shown in the chart:
The most important thing here, according to O'Rourke, is that investors should not rush out to buy. If things develop historically, they should wait a few weeks before taking action.
He also studied the bond market and found that bond yields fell across the board, but only rose in the third and fourth weeks after the last rate hike.
As for stocks, he listed the main sector returns from the first week to 90 days:
In the first week, he found that all stocks except financial stocks were falling, and then he further observed that technology stocks were leading after 90 days.
"Look at the next winner, there are finance and real estate. The popularity of these two sectors is so low that we may see a massive short-covering rebound."