Yellen Consigning Stocks Fate to Earnings That Keep Falling
- Falling profit greets Fed tightening for first time since 1967
- P/E tops levels at eight of the past 10 bull market peaks
U.S. Interest Rates: the Fed's Plan for 2016
This article is for subscribers only.
It’s hard to know which would be worse for U.S. equity investors right now: a contraction in valuations, or if stocks were left to rely on earnings growth to push them higher.
Both are likely outcomes of this week’s Federal Reserve meeting, where policy makers are poised to raise interest rates for the first time in 9 1/2 years. Past hikes have almost always put a ceiling on Standard & Poor’s 500 Index price-earnings ratios, and one now would come at a time when profits are already in decline. Such a combination hasn’t occurred in five decades.