Are we at the start of a tightening cycle, or not? That seems to be the question.
The answer: We seem to be in that shadowy period leading up to a tightening cycle.
That's an important distinction for stocks, because equities tend to gain in the period leading into those cycles, then reverse when the tightening begins.
MKM Partners, for example, noted that in the six months leading up to the three prior tightening cycles—February 1994, June 1999 and June 2004—the S&P 500 gained an average of 6.3 percent, led by financials, which were up 12.2 percent. That makes sense, since interest rates invariably rise, helping banks.
But three months after tightening began, the S&P 500 was lower in all three periods by an average of 4.2 percent. Defensive stocks such as telecoms outperformed cyclicals, including industrials and consumer discretionary.