History shows stocks can weather rate hike cycle

NEW YORK (March 16) - Fears over the Federal Reserve's hawkish shift have combined with geopolitical uncertainty to push the S&P 500 into a correction this year, yet historical data suggests tighter monetary policy has often been accompanied by solid gains in stocks.

That offers a glimmer of good news to investors, who widely expect the central bank to announce the first interest rate increase in more than three years on Wednesday and are pricing some 180 basis points of tightening by the end of the year. read more

The S&P 500 has returned an average 7.7% in the first year the Fed raises rates, according to a Deutsche Bank study of 13 hiking cycles since 1955.

An analysis of 12 rate hike cycles overall by Truist Advisory Services found the S&P 500's posted a total return at an average annualized rate of 9.4% during the length of such cycles, showing positive returns in 11 of those periods.

"Equities have generally risen during periods where the Fed funds rate is rising because this is normally paired with a healthy economy and rising profits," Keith Lerner, Truist's co-chief investment officer, wrote in a report.

REUTERS