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We're nearing the one-year anniversary of the last time the U.S. Fed raised rates. So what's been the impact since then? The S&P 500 and TSX composite have each posted 20 per cent gains, which UBS Securities strategist George Vasic points out is virtually identical to what happened to stock prices in the first year after rates peaked in the last two economic soft landings in 1984 and 1995. "The good news is that year two tends to offer more of the same," he offers. Specifically, in the second year after the 1984 and 1995 peaks in Fed funds, the TSX posted an average gain of 16 per cent while the S&P 500 jumped 29 per cent. "While this is stronger than we currently expect, it does make our 12-month targets of 15,000 for the TSX and 1,650 for the S&P 500 look quite achievable," he predicts. The TSX finished Friday at 14,119 and the S&P at 1,536. How come? "Quite simply, equities re-rated higher," he recalls. Among other things, forward price-earnings multiples rose, which matches what happened last year, and "what we expect going forward." Bottom line: "so long as a recession is avoided, rising multiples can take stocks higher even with a lacklustre backdrop for earnings and the economy, and not much help from the Fed."

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