Stocks gained after the Federal Reserve said it was planning on keeping interest rates low for a "considerable time." However, when that time finally comes stock investors may not need to worry all that much.
Goldman Sachs recently looked how the benchmark S&P 500 behaved before and after the three times the Fed began rate hikes over the last two decades. Their study found that the market index was up 12 months after each rate increase.
David Seaburg, head of equity sales trading at Cowen and Company, believes the Fed is the most transparent it has ever been and that will give confidence to the market when a rate hike comes.
"On announcement day, I expect the market to actually trade pretty well," Seaburg said. "If you use tapering as an example… they announced a December tapering,and the markets took off. So my expectations is once an announcement does occur, the market is going to rally and could rally pretty substantially. I think the comfort level people are going to have that the Fed is not acting too early is going to help us launch off."
Richard Ross, global technical strategist at Auerbach Grayson, believes stock investors should put any future rate increase into perspective. He cites the work of technical analysis pioneer Edson Gould from the 1960s to the 1980s as reason investors shouldn't worry just yet.
Gould "put forth a little philosophy called 'three steps and a stumble' which basically said after three raises in interest rates, you can expect the market to stumble," said Ross, a "Talking Numbers" contributor. "According to Ned Davis Research, from 1920 to the year 2000, it worked extremely well. We had a 17 percent median decline in Dow Industrials after that third interest rate hike. And here we are, we're fumfering around about one interest rate hike from de minimis levels."
Specifically, Ross notes the U.S. Treasury 2-Year note is currently yielding around 0.56 percent. Just seven years ago, that yield was around 4.5 percent.
"A little interest rate hike here is not going to derail this market," Ross said. "It doesn't mean the market won't go lower on other grounds, but I don't think a little bump up in rates is going to do very much."
In the meantime, Ross finds the technicals on the S&P 500 to be unassailable. "We've been above the 150-day moving average now for 21 months," he said. "That's a display of strength."
Ross also believes there's room for a little bit of upside; he sees a bullish flag pattern having formed earlier this month, projecting to an upside target of around 2,100 should a positive scenario unfold.
"Don't be overly concerned about interest rates in the short term," Ross said. "But keep your head on a swivel because there are plenty of other factors here that I think are more important right now in the short term. "
To see the full discussion on the S&P 500, with Seaburg on the fundamentals and Ross on the technicals, watch the above video.