The financial press is full of speculation that the end of the Fed’s rate-raising cycle is near. When the Fed is done, so goes the spin, the economy will take off, freed from the Fed’s dead hand, and the markets stage a spectacular rally. There are a couple of problems with this theory. First, historical precedent says that when the Fed comes to the end of a string of rate increases, the stock market falls. Secondly, Bernanke has made it clear that he will be “data-driven”. Just what that means isn’t really clear, but it is a good bet that the Fed will stop based on signs of economic weakness. Any economic weakness will show up in corporate earnings and personal incomes, which will not be good for the markets.

Does all of this mean there won’t be a rally? Of course not, especially as in recent years public market predictions such as the “fall rally” have become self-fulfilling prophecies (or staged events, depending upon your willingness to accept conspiracy theories). However, it does mean that it is unlikely to turn into renewal of the bull market, especially considering the technical weakness of the market in recent weeks.