The Chances of a Federal Reserve December Rate Hike Are Climbing. Here’s What History Says About Stocks After the Fed Starts Raising Again.
After a hot inflation report, the Fed could speed up this hiking cycle.
Federal Reserve officials are increasingly likely to raise interest rates at their December meeting, following a pause in September. Inflation remains high while the labor market stays robust, providing the central bank with flexibility. However, higher rates could negatively impact stocks. Historically, when the Federal Reserve starts a rate-hiking cycle, the S&P 500 tends to experience a decline in its first year, with an average drawdown of about 12%.
The 12-month return is also lower, averaging between 10.5% and 11.5%. While a slow or non-tightening cycle may not significantly harm the market's overall performance, an extended fast cycle could lead to prolonged losses. Nevertheless, investors should not abandon stocks entirely. Higher rates also affect bond prices, so it's essential to consider the current economic environment and the potential impact on individual stocks before making investment decisions.
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