Feds Expected Rate Hike Could Spark Initial Stock Market Jitters

The Federal Reserve is expected to raise interest rates at its upcoming meeting on September 15-16, and history suggests that stocks may react poorly initially. According to data aggregated by Carson Investment Research, since the start of 1990, the central bank has undertaken six rate-hiking cycles, with an average of 4.4 years between each cycle.

During this period, the initial stock market reaction after the first Fed rate hike was poor. In fact, over the last 36 years, the five quarter-point rate hikes undertaken by the central bank led to S&P 500 losses one month later 100% of the time. After three months, the benchmark index was lower 80% of the time, with an average decline of 2.7%

However, perspective is everything. While stocks may react poorly initially, they have always bounced back in the long run. In fact, the S&P 500 was higher 100% of the time by an average of 12.5% one year after each quarter-point interest rate hike.