The S&P 500 has already rallied to a 14-month thanks in part to Wall Street’s optimism about the Federal Reserve pumping the brakes on its monetary tightening campaign—and history suggests the index could surge considerably more should the central bank officially put an end to hikes Wednesday.Xinhua News Agency via Getty ImagesThe S&P 500 gained 16.
Even if the Fed reverses course, the data supports bullish investors’ sentiments: The S&P gained 18.9% on average in the 12-month period following the first, but not necessarily the last, pause in the four tightening cycles since 1990. The S&P gained 46.2% three years after the conclusion of its prior six hiking cycles, also outperforming historical returns.The Fed began the current tightening campaign last March, breaking out the strongest mechanism in its toolkit to fight inflation, which hit a 41-year high last summer.
4% last month on an annual basis, its lowest level in more than two years, but still far higher than the central bank’s 2% target.The S&P is up 15% year-to-date and more than 25% since last fall. The index now trades at a roughly 25 price-to-earnings ratio, a valuation metric which compares share prices to projected future earnings and historically sits at about 16.
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