Will Interest Rate Hike Effect The Markets
Well there are chances that Central bank of U.S and Canada can increase the interest rates,but analysts are that this hike will not effect the bull market on large.Though there are chances that this rise will slow down the pace of the running bull market but it will not snuff it out.With the Bank of Canada expected to raise its key lending rate in June or July – ahead of the U.S. Federal Reserve – the economist looked at the past 13 tightening cycles (between 1956 and the middle of 2004) to see how stocks performed.
According to Avery Shenfeld, chief economist Avery Shenfeld(chief economist) CIBC World Markets Inc “History shows that the half-year in the lead-up to the first Bank of Canada rate hike tends to coincide with a very strong run for stocks and stocks still outperform bonds in the early months after the first tightening move,”
BAML expects 10-year treasury yields to be 4.25% at the end of 2010. Provided they don’t exceed 4.5%, interest rates should not challenge Mr. Bianco’s 1,275 year-end target for the S&P 500.
David Bianco, chief U.S. equity strategist Bank of American Merrill Lynch (BAML) added: “It will take an interest rate surge to stop this equity rally.”
In another report Monday, Russell Investments Canada Ltd. said 69 per cent of managers surveyed over the last month remain bullish on Canadian equities, compared with only nine per cent who are bearish.
Many investors are worried that the dividend stocks will suffer as a result of bond-like characteristics when Bank of Canada will raise its key lending rate.But Peter Buchanan (senior economist ) has looked at previous Bank of Canada tightening cycles and found that the positives typically outweight the bad news related to higher rates.