Fed Rate Hike Kicks Off Tightening Cycle

The Federal Reserve raised interest rates for the first time in three years by 25 basis points to a federal funds rate target range of 3.75%-4%. This move marks the start of a tightening cycle.

Historically, the S&P 500 has been weak for the first few months after the beginning of a tightening cycle but recovers quickly. By the 12-month mark following the first hike of a cycle, the S&P 500 has historically been higher by an average of about 6.7%.

The current tightening cycle is distinct due to high initial interest rates and the long end of the yield curve being well above 5%. The 10-year Treasury yield was already at a 19-year high before the Fed's action.