Has the Fed reached the summit of its rate-hiking adventure? If so, our featured chart this week might shed some light on where the stock market could be headed next.
The chart illustrates the historical performance of the S&P 500 stock index after the Fed’s final rate hike in a cycle. The dark blue line represents the average S&P 500 performance over the 18 months following the last rate hike in a cycle, and the orange line shows the S&P 500’s current performance, assuming that the Fed’s last rate hike occurred on 7/26/2023.
The good news? The dark blue line shows that the S&P 500 has gained an average of 5.7% during months 6-18 after the last rate hike. We are currently at month 4.5, so if history is any guide, stock returns could pick up in the next few months.
However, the chart also makes an important distinction between periods of soft and hard landings. A soft landing signifies an economic period without a recession, while a hard landing indicates the presence of a recession. As you can see, the light blue line shows that returns during soft landings are vastly higher than the average, whereas the red line shows that much weaker stock returns occur during hard landings.
The bottom line? Most signs suggest that the Fed is done hiking rates, which has historically been bullish for stocks. Yet, the chart emphasizes a crucial point: if we enter an economic recession next year, stock returns might be considerably more restrained.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.
The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.