There has for a long time been a talk about the FED pivot. A Fed pivot occurs when the Federal Reserve, reverses its policy outlook and changes course from expansionary (loose) to contractionary (tight) monetary policy—or, conversely, from contractionary to expansionary. That is important for the stock market as long as the interest rate is the discount factor in the stock valuation formula. The interest rate enters the denominator of the terms in that formula. When the interest rate increases (decreases) these terms decrease (increase) and the stock is repriced as the present value of discounted cash flows. So ceteris paribus the stock price decreases when the interest rate (discount factor) increases. The stock price increases when the interest rate decreases.
Long duration stocks that has no or negative erarnings or cash flow are hit stronger by changes in the interest rate. Growth stocks, often high tech stocks are also hit harder than value and dividen paying stocks. Dividend paying and value stocks are often the best stocks to own in an interest increasing cycle.
Now there is a talk about the inflation pivot. “Focus on the inflation pivot, not the Federal Reserve pivot” is one heading on CNBC
https://www.cnbc.com/video/2022/11/29/waddell-focus-on-the-inflation-pivot-not-the-federal-reserve-pivot.html
We could add another potential pivot, a pivot from value and dividend stocks to growth and long duraton stocks at least when the Fed Funds rate (all discount factors father) and or / the US10Y rate (all discount factors mother) start do decline and trend down. The FED funds rate is of course strongly related to the inflation rate. So the inflation rate may pivot first, then the US10Y and finally the FED funds rate. The pivot from value and dividend paying to growth and long duration stocks may lag the the FED pivot. Some, especially high quality growth stocks may lead the inflation pivot.
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