![]() Then there were the deleterious paths stocks took following the Fed’s final rate rise in 1929, and to a lesser degree following the final rise in 2000. This was also in the midst of the secular bear market from 2000 to 2009. In fact, the stock market peaked in less than a month following the first rate cut in September 2007. Stocks performed well following the final rate rise in 2006, gaining 16 per cent one year after the last rate rise but as we all know from painful experience, it was a reprieve only be squashed by the global financial crisis. In 2018, the Fed was able to pivot to rate cuts but unlike now, it was not battling a 40-year high in inflation. Why? Consider the extraordinarily wide range of outcomes in the 14 cycles - generally in the range of a rise of 30 per cent to a fall of the same scale over the span of the 12 months following the final rate rise. Shame on anyone though who begins and ends the analysis with these generalities. ![]() Focusing only on the average would suggest a pattern of weakness leading into the final rise, some strength in the immediate aftermath, and then a significant sell-off out to about 100 trading days after the final rise. It is indeed possible to construct an average trajectory of the S&P 500 from six months before the final rate rise of each main cycle out to the following year. That suggests caution around thinking there is a consistent pattern to apply to investment decision making. Be mindful of the fact that the sample size is relatively small at 14 main rate rise cycles since the S&P 500’s inception in 1928. The problem is the playbook has had many different (and diverging) chapters over the history of rate rise cycles. Staying with those odds for now, perhaps it’s time to dust off the “what happens when the Fed is done hiking” playbook. The CME FedWatch Tool - which tracks the probabilities of rate changes implied futures trading data - indicates that investors believe that there is about an 95 per cent likelihood of no change to rates at the June monetary policy-setting meeting of Federal Open Market Committee.
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