Fed rate rise putting a lid on US equity gains
Historical data shows valuations will fall once tightening begins, and lower earnings projections add to that risk, say analysts
New York
NEVER before has a rally in the US stock market gone on this long without a Federal Reserve interest rate increase. Expecting valuations to keep rising once one comes is asking too much, if history is any guide.
While Standard & Poor's 500 Index price-earnings ratios are far from records, they've shown no ability to expand after the US central bank starts raising rates, according to data compiled by Goldman Sachs Group and Bloomberg. In the quarter after the last 12 tightening cycles began, P/Es contracted by an average of 7.2 per cent.
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