It's all about the Fed!

You want to see how rising interest rates puts a break on stock prices double click on this chart.

From the spring of 2004 until last July the Federal Reserve {the Fed} raised interest rates 17 times. The economy grew at above historic rates and corporate earnings continued at record levels. Yet stocks for most of this time barely budged. From the beginning of their tightening until the Fed finished, stocks grew at a bit over 5% {excluding dividends}. However, most of this gain came in a November 2004-February 2005 rally that was attributed to Wall Street's relief that George Bush beat John Kerry. If you take away those gains stocks have traded virtually flat for almost a year and a half. Now notice that when the Fed quits raising rates the market just takes off. An 8% gain in about 4 months. More in fact than in most of the past 2 years.

In short the Fed matters.