Just how big of a deal is rate hike for the equity market?

Just how big of a deal is rate hike for the equity market?


The Nasdaq Composite is now down about 8.0% since the start of the year on fears of inflation and rate hikes, but Ally Invest’s Lindsey Bell says the sell-off is unlikely to continue.

Bell’s remarks on CNBC’s ‘Worldwide Exchange’

Bell agrees the first half of 2022 could be challenging as the U.S. Federal Reserve continues to tighten its fiscal and monetary policy but expects recovery thereafter. On CNBC’s “Worldwide Exchange”, she said:

I think there still are a lot of positives for the second half of 2022. We have a really strong consumer, we’ve got earnings growth that looks reasonable and could be beat, and valuations have also come down a bit.

While the Central Bank is taking the money out of the system, Bell is convinced corporate dividends, and buyback programmes will be sufficient to keep liquidity in place this year. Stock repurchase hit a record in 2021 and is likely to keep up in 2022 as well.

Market can stomach multiple rate hikes

According to Bell, market will “only” underperform if the Fed raises rates at a pace that beats expectations. Other than that, even multiple rate hikes will not threaten the equity market this year.

If they’re thoughtful and communicate their plans and raise rates at a stable pace, the market will do just fine, even if there’s a bit of volatility around the 1st rate hike. We can still see a positive end to the year from a price-performance perspective.

She sees opportunity in small caps as the world continues to come out of the pandemic. Last week, RBC Capital Markets’ Lori Calvasina said energy and financials could be good bets for when rates are going up.

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