Rate Hike Looms: Stocks May Falter Initially, But Recovery Ensues

Kevin Warsh, the new Federal Reserve Chair, has made price stability the primary focus of the Federal Open Market Committee (FOMC). The odds are 50-50 that the FOMC will raise interest rates at its upcoming meeting on Sept. 15-16.

The Fed hasn't hiked in more than three years and could do so in two weeks. When it does, stocks often react poorly initially, but history suggests they bounce back with a vengeance.

According to data aggregated by Carson Investment Research, the S&P 500 has seen losses one month after each of the six rate-hiking cycles since 1990. However, three months later, the index was lower only 20% of the time, and one year after, it was higher 100% of the time.

Fed Chair Warsh's declaration that the FOMC will prioritize price stability has sent a clear message to investors: a rate hike is imminent. But what does this mean for the stock market? While some may worry about the effects of higher lending rates on Wall Street, history suggests that stocks tend to recover.