Stocks May Bounce Back After Fed Rate Hike: Historical Data Offers Hope

The Federal Reserve's recent interest rate hike has sparked concerns about its impact on the stock market. However, historical data suggests that stocks tend to perform well in the year following an initial rate increase.

A Fed tightening cycle was a catalyst for the last bear market in 2022. However, after an initial pullback, something unexpected happens: stocks generally rise in the subsequent 12 months.

The average 12-month S&P 500 return following an initial rate hike is 6.7%. The current Fed tightening cycle may be relatively short and mild, with only another 25 to 50 basis-point increase expected from here.