Although the exact timing of the first Fed rate hike is data dependent, the more important question is about the impact on financial markets. A concern is that bond yields would rise more than expected because investors would focus on the entire tightening cycle rather than simply on the first move. This could also influence the outlook for Wall Street. The chart shows the six month performance of the S&P500 and the cumulative change over six months of the 10 year US treasury yield.

S&P 500_Us 10-year bond yield

Working with a moving average tends to visually boost the correlation. With this caveat in mind one observes a positive correlation since about 2008 between the S&P500 and the level of bond yields. Before 2008 we quite often had a negative correlation. The positive correlation since 2008 indicates that over this period equities have been more dependent on expectations about future cash-flows than on what happens to interest rates. The rise in bond yields and the rise in equities then reflect the same thing: an anticipation of faster growth. The question to be answered once the Fed has started its tightening cycle is whether this will last. At some point, interest rate concerns will start to dominate views on cash-flows and earnings.