Fed Rate Hikes May Not Be Doom for Stocks: New Cycle Could Bring Gains

The Federal Reserve recently raised interest rates by 25 basis points to 3.75%-4% in an effort to combat inflation.

This marks the start of a new tightening cycle, and another rate increase is expected by year-end with more potentially coming in 2027.

Past Fed tightening cycles have been associated with bear markets, but data suggests that stocks often perform well after initial rate hikes.

In fact, outside of the 2022 bear market, the S&P 500 produced positive returns in the 12 months following an initial rate hike in each of the other five tightening cycles since 1994.