#56 S2N: A look at before and after the last hike

S2N Spotlight

This morning, I came across a chart put out by J.P. Morgan. I quickly created my own version, as I thought it was pretty cool. Let me explain:

First, I looked up the date of when the Fed made its last hike in a cycle. That is point 0 on the x axis, where I have put a dotted vertical line to mark it. I then go back 1 year (252 days) from the “event” date. I also show 2 years (504 days) from the “event” date. From the event date, I measure the cumulative return (before & after) and plot each cycle. Finally, I aggregated all the cycles to come up with an average SP500 return of 16.08%. There are only 6.5 observations in this sample size, but you get the sense that investing after the hiking cycle has stopped is a high probability trade.

The next chart is basically the same, but instead of the SP500, I have included the S&P US Treasury Bond 7–10 year total return index. I have less data, which means I am losing 2 events from the above chart and therefore have weaker probability confidence. You can see a similar 2-year average of 14.57%.

S2N Observations

The bulls have not given up on this market. The 52 week cumulative high-low indicator is slowly turning up. This means breadth is still growing. We need to see this green line turn down before we can say the bull market is over.

A little bit of trivia. The Hang Seng Index closed down today after a consecutive 10-day up streak. It was only the 13th time this has happened since 1964.

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