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1994
Brian
Trumbore
President/Editor, StocksandNews.com
Many in the investment community have
been pointing to 1994 as a worrisome comparison to
the current environment, one in which many seem to
be just waiting for the Federal Reserve to commence
with its long-awaited tightening program. On February
4, 1994, the Fed began raising the federal funds rate
from a cycle low of 3.00% to 6.00% by February 1,
1995 in a series of 7 hikes. But over the course of
'94, the Dow Jones Industrial Average rose 5% on a
total return basis and the S&P 500 rose 1.3%. True,
bond traders - and bond fund holders - were two parties
that got whacked, but when looking at today, perhaps
equity investors are overly concerned about future
Fed moves. [My true personal opinion, however, is
saved for "Week in Review."]
Following,
I take a look at the 7 rate hikes, the closing average
and point change for the Dow Jones that particular
day, and some miscellaneous data points.
1992?On
September 4, the Federal Reserve lowered the funds
rate to 3.00%
1993?No
change in monetary policy
??Dow
Jones Industrial Average closes the year at 3754
1994
Feb.
4?..+25 basis points to 3.25%...Dow 3871 (-96 pts.)
Mar.
22?+25 bps to 3.50%................Dow 3862 (-2)
Apr.
18?+25 bps to 3.75%................Dow 3620 (-41)
May
17?+50 bps to 4.25%................Dow 3720 (+49)
Aug.
16...+50 bps to 4.75%.................Dow 3784 (+24)
Nov.
15...+75 bps to 5.50%.................Dow 3826 (-3)
??Dow
Jones Industrial Average closes the year at 3834
1995
Feb.
1?..+50 bps to 6.00%.................Dow 3847 (+4)
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Consumer
Price Index
1992?
2.9%
1993? 2.8
1994? 2.7
1995? 2.5
In
other words, what inflation?
2001?
1.6%
2002? 2.4
2003? 1.9
2004? ?
And
when you look at the equity environment that followed
the Fed tightening of 2/1994 to 2/1995, as measured
by the S&P 500 the next five years saw annual returns
in excess of 20%, 1995- 1999.
Sources:
Ibbotson
Associates 2004 Yearbook
Federalreserve.gov
Phyllis S. Pierce, "The Dow Jones Industrial Averages
1895- 1995"
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Brian
Trumbore
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