They are many factors that move stock markets. But these days, it seems that investors are most concerned about one about all others – interest-rate hikes.
 
The conventional wisdom is that the current bull market has been built on years of short-term rates near zero percent and that the resumption of rate hikes engineering by the Fed could push stock values down, perhaps even triggering a bear market.
 
But Josh Brown, a principal with Ritholtz Asset Management and a popular financial writer, put this notion to the test in an article running on the Fortune site. His findings are somewhat different than might be expected.                  

There has been plenty of heated debate among pundits about when the Fed will start raising short-term rates, with estimates in recent weeks ranging from early summer to sometime next year.
 
To Brown’s credit, he starts his piece by shying away from the rate forecasting game.
 
“I won’t be throwing a hat in the ring with forecasts of my own,” he writes. “Instead, I will be offering the context you need about how various asset classes have responded to rising rate periods in the past.”
 
Looking at the past with the help of Michael Batinick, the research director at Ritholtz Asset Management, Brown focuses on how various asset classes acted before, during and after historical rate-hike cycles.
 
“For the purposes of this investigation, we define ‘rate hike cycle’ as any period in which the Federal Reserve has raised the Fed Funds rate in a minimum of three successive meetings without a cut,” Brown writes. “ Going back to 1976, there were eight such rate hike cycles, the shortest of which was nine months and the longest representing a total of 39 months.”
 
Among his findings: U.S. stocks are “surprisingly resilient as interest rates rise.”
 
He writes, for example, that in the one year period leading up to a rate hike cycle, the S&P 500 has done significantly better than the typical 12-month rolling period, with an average return of 18.11% versus 11.6%. In addition, in the one year period following the final rate hike of a cycle, the S&P 500 “has also done better, with a return of 14.6% on average.”
 
Though stocks typically do worse than average during the rate-hike cycles themselves, they still manage to earn positive returns for investors. “The S&P 500 has posted a weighted average compound annual growth rate (CAGR) of 8.3% during the eight rising rate periods of the last four decades. And volatility has actually been lower than normal during six of these eight periods.”
 
Brown found, perhaps not surprisingly, that foreign stocks “massively outperform U.S. stocks before and during rate hike cycles. In the one year period leading up to a Fed Funds rate hike, the MSCI EAFE Index (European and Asian stocks) has delivered an average return of 25% versus the typical 11% rolling 12-month period.”
 
He concludes that a diversified portfolio with foreign stocks has allowed investors to “offset the pressure of rising interest rates on their other holdings. We tested a portfolio consisting of 30% S&P 500, 30% MSCI EAFE, and 40% Barclays Aggregate Bond that was rebalanced annually. Historically, this portfolio comes through rising rate cycles with flying colors.”
 
The article, of course, is built around an assumption: that a period of Fed-induced rate hikes is just around the corner.
 
So it’s worth noting that no everyone is so convinced that rate hikes are coming in the next six months or more.
 
Writing on his Tumblr account, money manager Scott Fearon thinks that a weak retail housing market and resulting low inflation will keep a dovish Fed from tampering with the fed funds rate until well into next year at the earliest.
 
“To date, low interest rates have successfully ignited inflation for paper assets like stocks, investments in yet to be public companies (Uber, Snapchat, etc) and collectible assets like art and French wines. The higher-end housing market is on fire, too,” adds Fearon. “But until the rest of the country shares in the good times, I don’t see inflation hitting the Fed’s 2% goal for a rate hike. Sure, unemployment has dropped, but real wage growth is flat. That shouldn’t be surprising. Construction is one of the only sectors left that offers decent-paying blue collar jobs. People can’t spend what they don’t have–and while housing starts have risen somewhat, they’re a long way from the 2006 peak.”
 
He concludes: “Until the wider housing market improves, I am going to have a hard time believing Chair Yellen’s assurances about “normalizing monetary policy.” I think we could easily go another year or even two with rates at zero.”
 
Thus, Fearon is urging a “Don’t Fight the Fed” investment approach that includes buying shares of home builders such Houston-based LGI Homes and Dallas-based Green Brick Partners. “Both have been growing rapidly and posting strong earnings–and our new normal of low- to no-interest rates will only help their causes,” Fearon writes.
 
If Fearon is correct and rates remain low, that might benefit dividend-rich stocks, which often trade like bond proxies because of their high yields relative to most stocks.
 
But writing for etf.com, veteran investment writer Larry Swedroe argues that dividend stocks and funds that investment in them are no safe refuge at this time.
 
“Over the first four months of 2015, the average return to its 420 dividend-paying stocks [in the Standard & Poor’s 500) was 1.55 %,” Swedroe adds. “The average return to the nonpayers was 7.45 %. Over the last 12 months, the gap was even wider. The dividend payers returned 12.85%t and the nonpayers returned 20.64%.”
 
He concludes that “2008 should have taught investors that dividend-paying stocks aren’t a viable alternative to safe bonds. Unfortunately, far too many investors failed to learn that lesson, one that could prove to be very expensive when the next bear market arrives. The problem is compounded by the fact that the popularity of dividend strategies has led to valuations now above those of the overall market. Forewarned is forearmed.”