Fed Rate Hike Expected to Hit Stocks

The Federal Reserve is widely expected to raise interest rates next week for the first time since July 2023. This move has traders wondering what will happen to stocks if it happens.

Historically, stocks have often declined in the months following a rate hike but tend to recover over time, according to LPL Financial Chief Equity Strategist Jeff Buchbinder.

The first four months after the start of a rate-increase cycle on average saw negative returns for the S&P 500 in six such cycles since 1994. This would take us into early 2027, when the benchmark index was up about 11% this year through Thursday's close.

Buchbinder noted that 'rate hikes do not typically derail bull markets.' However, stocks don't always rise in the year after the start of rate hikes. They were down 12 months after the start of the last cycle of increases, which coincided with the end of the pandemic.