Why the old 'three hikes and a stumble' theory doesn't apply to the market this time


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There's an old Wall Street adage that stocks sell off after the third interest rate move in a Federal Reserve hiking cycle.

But strategists say the old 'three hikes and a stumble' theory may not work this time.

The S&P 500 is up 16 percent since the Fed hiked rates in December 2015, for the first time in nine years. Its second hike was in December 2016 and now Fed watchers expect the Fed to move the Fed funds target range by a quarter point this Wednesday.

Jim Paulsen, chief investment strategist at Wells Capital Management, said the extraordinary easing that led to the current rate environment has also created a different relationship between the stock market and bond yields in that it's unusually positive.

"As long as the correlation is this positive, the risk of a major pullback due to interest rate pressure is probably exaggerated," he said.