5 reasons interest rate hikes won’t smash your ASX shares

Central banks are getting itchy, so stock markets are nervous. But one expert reckons investors don’t have much to worry about.
The post 5 reasons interest rate hikes won’t smash your ASX shares appeared first on The Motley Fool Australia. –

It looks like the ‘free money’ party is nearing the end as the Reserve Bank of Australia and other central banks consider winding down their COVID-19 assistance.

“The US Federal Reserve is starting to ‘talk about talking about tapering’ (or slowing) its bond buying, and Fed officials are signalling the start of rate hikes in 2023,” said AMP Capital chief economist Dr Shane Oliver.

“In Australia, the RBA is also slowly heading towards the exit of easy money with 0.1% funding for banks ending this month… and a speech by Governor [Philip] Lowe dropping a reference to the conditions for a rate hike as being ‘unlikely to be met until 2024 at the earliest’.”

But Oliver, writing on a AMP Ltd (ASX: AMP) blog, reckons stock investors have little to worry about.

The volatility seen the last few weeks may continue, he said, but that would be all standard cyclical behaviour.

“Shares are vulnerable to a correction. They have run very hard and we are now in a seasonally weak period of the year – so the rough patch could have further to go,” said Oliver. 

“However, we would see this as just normal gyrations for this stage in the cycle.”

Oliver presented 5 reasons why he thought shareholders are in the clear.

Monetary policy is still ‘ultra-easy’

While money might not be quite as ‘free’ as now, it’ll still remain pretty cheap.

“Tapering of bond purchases is not monetary tightening, it’s just slower easing,” said Oliver.

“While some emerging country central banks have raised rates, rate hikes in the US and Australia are still 18 months to 2 years away and the ECB and Bank of Japan are further behind.”

Oliver added that the current inflation spike was temporary anyway.

“Various commodity prices have rolled over – eg US timber prices down nearly 50%,” he said.

“US wages pressure will subside as enhanced unemployment benefits end and schools return, sending workers back into the jobs market, and it will be similar in Australia when backpackers return.”

Good news is good news

Oliver reminded investors that the central banks’ hawkish shift simply reflected the positive recovery in economies around the world.

“With monetary stimulus having done its job, the need for emergency monetary settings is starting to recede,” he said.

“The recent shift in tone from central banks is most unlikely to signal that they are backing away from their commitments to getting inflation sustainably back to target – rather it reflects the reality that as recovery has been stronger than expected, they will likely meet their objectives earlier than previously expected.”

Shares rose through the last ‘taper’

The last prolonged period of stimulus tapering in the United States was from December 2013 to September and October 2014, according to Oliver.

And stocks actually rose through it.

“This is likely because tapering is a slowing in easing — not actual tightening — and rates were still low,” he said.

“There is no reason to expect a different outcome through the next taper, particularly given that the start of tapering is being well flagged.”

Maybe a short dip but shares will rise again

History is on the side of share investors, according to Oliver, even when the interest rate hikes arrive.

“The experience of the last 30 years suggests an initial dip in share markets around the first rake hike but then the bull market resumes.”

He presented 1994, 2004 and 2015 as examples where rate rises depressed stock markets for a short while, then it was back to gains again.

“Recession did not come for 7 years after the February 1994 first hike, for 3.5 years after the June 2004 first hike and for 4 years after the December 2015 first hike — and that was due to the pandemic,” said Oliver.

“This is because the first rate hike only takes monetary policy from very easy to a bit less easy. And it’s only when monetary policy becomes tight after numerous rate hikes that the economy gets hit. This is all a long way off as even the first hike is a while away.”

Current times are consistent with the investment cycle

Even if you don’t believe anything else that he said, Oliver reckons the current bumpy ride in markets perfectly fits into the narrative of the investment cycle.

“Right now, we are likely in phase 2 of the investment cycle. Monetary support is likely starting to diminish (albeit only slowly), and we are now more dependent on earnings growth,” he said.

“This shifting of the gears from the phase 1 valuation driven gains typically sees some slowing in average share market gains. But the trend remains up and we are likely still a fair way away from the unambiguous overheating and exhaustion evident at the end of a cyclical bull market.”

The post 5 reasons interest rate hikes won’t smash your ASX shares appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of May 24th 2021

More reading

Sell Nuix, AMP, Pushpay before EOFY? Expert weighs in

Here are the 3 most active ASX 200 shares trading today

Investors warn ASX 200 boards to stamp out sexual harassment

Here are 3 of the ASX 200’s most traded shares today

Here are the 3 most traded ASX 200 shares today

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.


移动APP平台,拥有 12 个市场的 50,000 多种全球上市证券(全球市值超过 70%),直接在您的 Android 或 iOS 设备上即可操作。

与独有的交易理念和投资分析工具相结合,帮助您在我们 12 个全球市场中的几乎所有金融工具上找到可操作的见解,从而帮助您优化交易策略。





Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!