Fed Rate Hike Looms: Stocks May See Initial Declines Amid Inflation Fight

The Federal Reserve has signaled that a rate hike may be on the horizon, and history suggests it could have an initial negative impact on stocks. Since the start of 1990, the Fed has undertaken six rate-hiking cycles, with an average of 4.4 years between each cycle.

According to data aggregated by Carson Investment Research, the S&P 500 index lost value one month after a quarter-point rate hike occurred 100% of the time since 1990. After three months, it was lower 80% of the time, with an average decline of 2.7%. A 50 basis point initial move has only happened once in this period and led to double-digit percentage declines for the S&P 500.

Fed Chair Kevin Warsh has prioritized price stability, and a rate hike would signal a direct approach to tackling above-average inflation. The current odds of a rate hike at the Sept. 15-16 meeting are 50-50, according to the CME Group's FedWatch Tool.