LIVE MARKETS-A repeat of the 1962 bear market is unlikely

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A REPEAT OF THE 1962 BEAR MARKET IS UNLIKELY

The battle at the Federal Reserve rages on, with Governor Lisa Cook on Thursday filing a lawsuit claiming President Donald Trump has no power to remove her from office, in a legal fight that has the fate of the central bank's long-established norms of independence at stake, something considered crucial for market stability by many investors.

The wrangling has some wondering if the legal grappling will have a similar outcome to the bear market of 1962, according to Sam Stovall, chief investment strategist at CFRA Research.

Stovall notes that the end of the recession that stretched from April 1960 to February 1961, along with a bottoming out of the year-over-year climb in the consumer price index (CPI) was welcome to the new President, John F. Kennedy and "Not surprisingly, Kennedy was keen on maintaining a recovering economy, while keeping inflation under control."

But six months later, the inflation rate had more than doubled and stayed elevated for another six months, during which U.S. Steel decided to raise prices. Kennedy felt this was a hurdle to the recovery and added upward pressure to inflation and subsequently forced the company, along with other steel firms to undo their price hikes.

While this may have seemed like a good idea, Stovall points out that equity markets didn't view the precedent for presidential intervention well and the S&P 500 .SPX suffered a bear market that stretched from December 12, 1961 to June 26, 1962.

Stovall does not think the results will be similar this time around as "Wall Street will focus on the bottom line, encouraged by forecasts for rising earnings growth. However, in the longer term, a spike in bond yields could result from an overly stimulative Fed."

(Chuck Mikolajczak)

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