Fed tightening doesn't signal bear market ahead, Credit Suisse says

The imminent start of policy tightening by the US Federal Reserve does not mean a bear market might be about to start, a top ranked strategist said on Thursday, although losses might be expected.

When the Fed raises rates next week it will do so to avoid the risk of financial asset bubbles and create room for easing heading into the next economic recession, "not to control inflation by slowing down growth," Credit Suisse analyst Andrew Garthwaite said in a research note sent to clients.

"Thus the likely Fed rate rise doesn't, in our view, signal an equity bear market until: i) the yield curve inverts; or ii) the US reaches full employment (which we think is when unemployment is at c.4% vs 5% currently)," he went on to explain.

However, on a tactical basis it is true that the first hike by the Fed has historically triggered about a 7% fall in US stocks.

“And there are plenty of other warning signals on US equities currently […] though it has never marked the end of a bull market.

"Typically, six months later equities are, on average, up 2.2% from pre-Fed tightening levels," the strategist said.