Look for the S&P 500 to drop in the first month after the Fed rate hike before shifting into recovery mode, CFRA says

  • The S&P 500 is likely to see a decline over the first 30 days after the Fed begins a rate-hike cycle, said CFRA on Wednesday. 
  • Since 1994, the benchmark has lost ground all five times in the first month of a rate-tightening cycle. 
  • But the S&P 500 has moved into gains at the six-month mark 80% of the time, CFRA said. 

The S&P 500 is likely to lose ground over the next month following the Federal Reserve’s interest-rate increase before seeing gains several months down the road, according to CFRA. 

The broad-equity index jumped 2.2% Wednesday in volatile trade after the Federal Open Market Committee raised the fed funds rates by 0.25 percentage point in an 8-1 decision. It also indicated another six rate increases will be on the way in 2022 as policymakers combat soaring inflation that hit a fresh 40-year high of 7.9% in February

Since a “more transparent Fed” started announcing changes to the fed funds rate, the S&P 500 has recorded price declines of 3.1% one month after the start of hiking cycles, said independent research firm CFRA in a note Wednesday after the FOMC launched its sixth rate-tightening cycle since 1994.

“What’s more, the S&P 500 fell all five times in the first 30 days following the initial hike since 1994, but recovered to a 80% frequency of advance by the six-month mark,” wrote Sam Stovall, CFRA’s chief investment strategist. 

But the S&P 500’s performance improves progressively after that first month. The benchmark since 1994 had logged declines of 0.8% three months after Fed liftoff then saw gains of 6.4% at the six-month mark and a rise of 12.2% at the 12-month mark. 

The S&P 500 is still down by nearly 9% for 2022, with Russia’s war in Ukraine contributing to pressure on equities.

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