Wall Street veterans say rate-hike past is not prologue for markets

Sun Dec 13, 2015 8:03am EST
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By Trevor Hunnicutt

NEW YORK (Reuters) - It has only been six years since the U.S. stock market rout brought on by the financial crisis, but as far as Deena Katz's clients are concerned, that might as well be ancient history.

"People have a thirty-second memory," said Katz, 65, co-chairman at Evensky & Katz/Foldes Financial Wealth Management. "We're used to an instant turnaround."

That is particularly true when compared to investors who lived through longer periods of economic disaster, like the stagnant economy and rampant inflation of the 1970s or the Great Depression in the 1930s. By comparison, the last seven years have delivered the gift of easy money.

For veterans of several Federal Reserve interest rate hike cycles, the last several years have presented something of an abnormal condition. Rates have been stuck at the zero level, stock-market returns have been strong, and inflation has remained benign.

The economy has grown at a steady pace for several years, enough for investors to put together good gains annually. Investors have taken home an average 7.5 percent in gains on large-capitalization U.S. stocks during each year of a ten-year period that ended last month, according to Morningstar Inc.

Those who have seen several U.S. interest rate rise cycles think things are going to get more difficult.

"We have a Dow Jones Industrial Average that has basically tripled from the trading lows in March of 2009," said stock trader Ted Weisberg, who founded Seaport Securities Corp in 1979.

"People have been spoiled," said Weisberg, 75. "You had spring of 2009 to the end of 2014. The rising tide floated a lot of ships, but that rising tide was driven by Fed monetary policy."   Continued...

Traders work underneath a television screen showing Federal Reserve Chair Janet Yellen announcing that the Federal Reserve will leave interest rates unchanged on the floor of the New York Stock Exchange in New York September 17, 2015.  REUTERS/Lucas Jackson