Rate Hike Almost Certain, But the Real Drama for U.S. Stocks Is Just Beginning: A Replay of 2022 or a Repeat of 1997?

According to Investopedia, U.S. stocks often struggle in the initial months after the Federal Reserve initiates a rate hike. Data from six tightening cycles since 1994 shows that if the economy avoids a recession, Fed rate hikes do not necessarily end a bull market; however, if growth stalls, the narrative can quickly reverse. Jeff Buchbinder, Chief Equity Strategist at LPL Financial, analyzed the six Fed tightening cycles since 1994 and found that the S&P 500 Index typically performs weakly in the short term following the first rate hike, but results improve significantly one year later. Historically, after the Fed raised rates in March 1997, the S&P 500 surged 42% over the following year, with this exceptionally strong performance significantly boosting average returns.