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)
—
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”
—
Wall Street History returns 5/28.
Brian Trumbore
