Should Investors Fear A Rate Hike?

With the Federal Reserve set to release the minutes from its December meeting on Wednesday, traders may be beginning to think about how their portfolios will be affected if the bank raises interest rates in the spring, as anticipated.

The US central bank was cautious about its exit from the market last year and has been slow to raise rates, but comments from Fed Chair Janet Yellen have most anticipating a rate hike some time in the second quarter. 

At the end of 2014, Yellen warned that markets could see increased volatility as the bank raises rates, but some believe that with the bank’s constant communication and market preparation, the transition could be smoother than anticipated.

While many worry that the market’s 2014 rally will come to an end in April, others see the economy as healthy enough to withstand the rise.

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The Wall Street Journal recently reported that JP Morgan Asset Management studied the effects of a rate increase on stocks over the past 25 years. The firm found that although there were losses in the first week following the rate boost, after one to three months, returns became positive.

Additionally, market losses are typically experienced once the interest rate climbs above the 5 percent mark -- something the US rate isn’t likely to do for quite some time.

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