Fed raising rates in December? It could be a buying opportunity for stocks

The last Federal Open Market Committee, or FOMC, meeting of 2018 will take place on December 19th.

For Fed Chair Powell, the case for tightening (raising rates) is fairly straightforward:

  1. The U.S. economy is in good shape
  2. Inflation remains steady
  3. We have a workforce that's at full employment

The wisdom backing a dovish approach (not raising rates) cites:

  1. Uncertainty around the ongoing trade rift between the U.S. and China
  2. A slumping housing market that's driven by rising mortgage rates
  3. The recent market volatility

Despite the arguments, the odds of a hike, according to the CME Fedwatch Tool, is now around 70 percent.

And historically, the month leading up to a December hike have been bullish periods.

Over the previous rate hike cycles since 1994, there have been 4 other December rate hikes; in the month before these episodes, the S&P 500 and Nasdaq gain about 2.8 percent each, with the Dow leading, adding over 3 percent – with all three indices trading positively 100 percent of the time in that period.