The month began on a solid note as stocks rallied following the Fed’s announcement of a 50-basis-point hike in the federal funds rate. The market was relieved to hear comments from Fed Chair Jerome Powell, who said that a 75-basis-point increase was not actively being considered.
As investors saw in January, these high-multiple stocks can come under pressure as bond yields trend higher. The reason for this is twofold. First, when rates tick up, it’s more difficult to forecast future earnings. Second, higher rates may increase a firm’s cost of capital.