Interest-rate hiking cycles often generate negative headlines and remind investors of the challenges experienced during prior monetary tightening cycles.
While 12-month S&P 500 returns have varied widely, ranging from -11.7% to +18.3%, the index has averaged a +1.4% return following the start of a hiking cycle since 1958.
The economic environment at the start of each cycle may have been an important differentiator, particularly the relationship between inflation and the federal-funds rate.
In 2022, conditions were an extreme example, with the Consumer Price Index (CPI) near 9% and the federal-funds rate near 0%, leaving real rates deeply negative as the Federal Reserve began tightening.
The landscape is meaningfully different today, with the CPI at 3.4% versus a 3.50%–3.75% federal-funds rate, resulting in modestly positive real rates and potentially less work for the Federal Reserve to bring policy into balance with inflation.
While uncertainty and a range of outcomes remain, today’s more balanced starting point may provide a constructive backdrop compared with the one investors faced at the beginning of the 2022 tightening cycle.
S&P 500 Performance Following Rate Hikes
Interest-rate hiking cycles often generate negative headlines and remind investors of the challenges experienced during prior monetary tightening cycles.
While 12-month S&P 500 returns have varied widely, ranging from -11.7% to +18.3%, the index has averaged a +1.4% return following the start of a hiking cycle since 1958.
The economic environment at the start of each cycle may have been an important differentiator, particularly the relationship between inflation and the federal-funds rate.
In 2022, conditions were an extreme example, with the Consumer Price Index (CPI) near 9% and the federal-funds rate near 0%, leaving real rates deeply negative as the Federal Reserve began tightening.
The landscape is meaningfully different today, with the CPI at 3.4% versus a 3.50%–3.75% federal-funds rate, resulting in modestly positive real rates and potentially less work for the Federal Reserve to bring policy into balance with inflation.
While uncertainty and a range of outcomes remain, today’s more balanced starting point may provide a constructive backdrop compared with the one investors faced at the beginning of the 2022 tightening cycle.