Prior Rate Hike Cycles And Their Effect On The Stock Market

Interesting charts from Liz Ann Sonders of Schwab. The charts below show the stock market reaction to two previous rate hike cycles. While the Fed was clearly numb to any inflation threats from its money-printing antics based on the most recent policy rate meeting, they will have to reign in liquidity some time in the future. For now, the Fed is happy to serve up refills of the punch bowl to guarantee that any economic recovery is in firm footing.





Take note that after an initial sell-off on gradual change in wording to "hawkish" and a further sell-off on the initial rate hike, markets were eventually able to recover and bull markets ensued. Many people worry that inflation and higher rates will be detrimental to the economic recovery, and this is why the market sells off initially when inflation is confirmed by a rate hike. But inflation and rate hikes are actually good especially when we are coming off the bottoms of the economic cycle... it means that the economy is recovering and this is certainly better than anything deflationary! The inverse sceanrio is when the Fed first cuts rates and the markets have a relief rally, but then the bear market ensues as it means we have reached the peak of the economic cycle.

So where do you guys think the market is currently standing in light of past rate hike cycles? Pin the tail on the donkey correctly and you win a chance to avoid a market correction and get to bargain hunt for stocks for the first leg of the bull market!