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... the increase in interest rates will affect M&A and capital markets negatively and thus hiring will be down next year.

this is most likely the case, but I think it is good that the Fed is trying to rein in the bull before the low interest rates eventually builds up its own big bubble ..

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I would be careful when making assumptions about what will happen in the short term (i.e. next year). This initial rate hike just marks the starting point of what will be a continuous pattern of rate hikes over the long term.

Will this first rate hike affect M&A activity in the near future? No, probably not. In the long term? Most likely.

You sure that will apply to #1?

OP really does not provide strong evidence about why an interest-rate hike is good for the stock market, besides just listing catalysts that are mostly accounted for in the current market. If stock markets continue to do well against the backdrop of an interest-rate hike (which I believe it will), it will be because the Fed will be very, very cautious and gradual with their fiscal policy.

A Fed rate hike signals an extremely healthy and growth orientated economy. It is as if the Fed is putting a stamp of approval upon the economy.

blame it on the weather.

The OP's analysis is weak, at best.

First of all, the Fed doesn't--or shouldn't--give a sh*t about the stock market or the growth of "mid-caps." That's completely and utterly out of the purview of the Federal Reserve. I have no idea why that would even be listed as a reason to raise rates.

Second, umm, what inflation? There is no substantial inflation in the economy.

Third, why would the Federal Reserve slap a stamp of approval on a mediocre economy? 2.5% (annual) growth is mediocre, not a "strong and healthy" economy.

Fourth, GDP in Q1 2015 fell at a pace of 0.7 percent; it didn't increase at a pace of 0.2 percent. That should probably change your perspective on what you deem a "healthy" economy.

I'm not sure whether I agree that higher interest rates would have a positive effect on the stock market. On the one hand it singals the economy could be stronger but from a fundamental point of view it means that discount rates are higher and margins could begin to compress for many industries.

Interesting claim that a stronger dollar is "good"... It has its pros and cons, but I wouldn't label it "good", especially in this environment of over the top strength...

1 isn't a particularly convincing claim. The past is NEVER indicative of the future.

@DCDepository" hit the nail on the head about mid-caps. However, while 2.5% isn't exactly "strong and healthy" -- it's a start.

You need a hike to avoid inflationary pressures and perhaps reduce the risk of bubbles. As others mentioned, the hike indicates a strong economy but increases the discount rate, so the net effect on stocks is unknown.

The strength of the USD has resembled a significant Fed tightening (along with cheap oil prices). The jobs market is not as tight as previously thought, with hourly wages showing a slowdown in growth.

All in all, I think we will see a hike in December. I doubt this will cause hell to break loose in the illiquid bond market, but I do expect periods of high volatility in that market.

I'm very surprised by the Fed's decision.

Rising rates will cause borrowing costs to increase...not great gents

Unintended consequence of rising rates; the math of further debt issuance to tap into off-shore capital or to buy back equity will not be as attractive. One positive would probably be an increase in the velocity of money from increased capex since buybacks may no longer make sense from an IRR perspective as opposed to actually investing in growth capex... or money leaving closed loop that is the equity markets actually entering the 'real economy;

More people will buy...

I'm not 100% sure real estate lending rates will go up that much. There's extreme competition out there right now for mortgage loans and quality commercial real estate loans.

People seem to forget that the treasury note is a function of demand--- not what the Fed commands it to be. USA is a safe haven and Europe and China are not. USA CRE and UST will remain in high demand. Historically, as rates rise the spread between loans and UST tightens, helping commercial RE loans stay lower.

Isn't there a floor for most floating rate loans?... something like "no matter how low the fed makes the rates, the minimum interest is is 2%"... From the little I have seen (student loans; not mortgages) the floor has been well above 0.25%. So will probably not affect anything much.

I have to point out the irony though. Banks are scared and need 0% interest rates (blah... blah...) but they had no issue setting non-zero floors for borrowing individuals - you know - the ones who actually need to spend.

I think the spread between interest rates and property returns will remain large enough to continue to incentivize CRE investing. Right now we are seeing crazy returns, so the slight increase in rates will dampen returns a bit, but not much. Also, consider the alternative investment vehicles. Oh wait, there aren't many others. In terms of safety, stability, and price, CRE remains attractive to buyers around the world, especially overseas.

I think I posted this in the "where are we at in the cycle thread"...

Yeah, if Wall St. slides (Dow is down 2% YTD) money will flock to bonds and keep rates down through the first couple year or two of hikes.

A lot of that demand is because of QE and reinvestments from the Fed's large balance sheet.

I think, no question, that if the Fed were to start selling off assets in large amounts, you would see yields on longer-term MBS rise. As the TBA MBS market and the treasury market are widely considered interchangeable (due to the government guarantee), for similar-duration Treasuries, you'd certainly see a positive effect on yield.

The last thing we want is an inverted yield curve, so I think the Fed should act on this very soon.

is this a debate or do you legitimately not know how interest rates affect various markets?

Pretty much disagree with all of your points / most of them make no sense.

Market is reaching meteoric heights. Economy is doing well (per the numbers anyway). Why not increase rates.

I think there are a variety of reasons the Fed is looking to raise rates. Since 2015, the U.S inflation rate and foreign direct investment have been trending upwards. Also, the Consumer Price Index and average hourly wages are at all-time highs (roughly 240 and 22, respectively). Lastly, the unemployment rate is around 4.7%, the lowest it has been since the great recession. There are other factors that the Fed considers when raising rates, but I think these are some of the most important. A really useful website is tradingeconomics. They give you TONS of economic information to research. I believe Janet Yellen said that Fed was aiming to raise rates three times this year. A rate hike in March would keep them on track for that goal. I think what is also important to note is that the Fed Funds Rate is still INCREDIBLY low when looked at from a historical perspective.