What Happens to the Stock Market when the Rate Hike Cycle ends?

 

From March of 2022 until July of 2023 there have been 11 Federal Reserve Open Market Committee meetings. The Fed Funds Rate rose on each occasion climbing from .25% to 5.25%.

This was not the biggest move in rates ever, but it was the steepest.

On November 1^st, 2023, and for the second consecutive meeting rates have held steady. The Federal Reserve is “On Hold.” The Chairman of the Federal Reserve, Jerome Powell never misses an opportunity to wag a finger at Financial Markets, however. He repeated the same warning he gave the last time they held rates steady. The Federal Reserve is standing at the ready to raise rates again in future meetings if necessary.

I think Rate hikes are over for this cycle. Unless Economic Data reverses course immediately, and inflation goes from moderating to accelerating interest rates have peaked.

So how has the S&P 500 behaved after the end of previous Fed rate hike cycles?

On average the S&P gained 16.8% over 12 months and 46.2% over 36 months following the end of the last 6 rate hiking cycles.

I do not believe in Market Timing. As the saying goes “it’s not timing the market its time in the market” that matters. But for those of us with money in the market or cash available to invest the conclusion of this Fed Tightening Cycle is good news.

… another reason to believe the market is turning Bullish.

The low point of the S&P for this Bear market was in October 2022 when it declined to 3,502 points. It rallied until February 2023 then declined to 3,813 in March of 2023. From March of 2023 until July 2023 it rose again before declining in August, September, and October 2023. It hit a low point the last week of October at 4,115.

Now I am just a simple Fundamental Analyst but even I can see the successful retests of that old October 2022 Bear market low and a series of higher lows and higher highs since that time. My Technical minded Brothers and Sisters would suggest that a positive trend is emerging.

As usual buy quality companies with best in breed management and ignore the noise. The coast is never clear.

 

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