Three Steps and a Stumble

For those investors who can remember, to kill the bull, all its takes is 3 steps and a stumble.

The rule is called "3-steps-and-a-stumble" and was conceived by Arthur Wiesenberger & Co. more than 30 years ago. In fact, two articles describing the rule were penned by Edison Gould in Barron’s, one in 1965 and one in 1968.

The 3-steps-and-a-stumble theory tells us that after the third interest rate increase the stock market declines significantly, usually within 6 to 12 months following the third rate hike.

Since 1948, the Fed has tightened with multiple hikes 11 times. Nine (9) of those eleven (11) times, the market has declined 15% or more. The worst being in 2000 with a 50% decline in the SP500 and 75% decline in the Nasdaq.

So far in this tightening cycle, the Fed has raised rates six times for a total of 150 basis points. The third fed rate hike was exactly 6 months ago. Nuff said.

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