What Would 5 Rate Hikes Mean for Stocks?

Posted by lplresearch

Wednesday, February 2, 2022

The Federal Reserve (Fed) has made a decidedly hawkish pivot, with fed funds futures now expecting five rate hikes in 2022. For our full breakdown of the latest Fed meeting, please read our January 27 blog, Federal Reserve Meeting Recap: March is Officially Live. However, today we want to take a look at other years that had a lot of rate hikes.

“Five rates hikes in 2022 sounds pretty scary to a lot of investors who haven’t lived through a period of hiking,” explained LPL Financial Chief Market Strategist Ryan Detrick. “But we’ve seen many years with this many (or more) hikes and bad news isn’t certain. In fact, stocks can do just fine with multiple rate hikes if the economy is strong and earnings are healthy.”

As we share in the LPL Chart of the Day, this has happened before, as most recently we saw 5 hikes in 2004 and 2005 (which had 8).

Taking things a step further, here are the years with at least four hikes in a calendar year and how stocks did. Yes, overall the full-year returns are more muted, but that doesn’t mean a bear market is imminent. In fact, in recent history we saw a total of 17 hikes in 2004, 2005, and 2006, yet the S&P 500 was green all of those years.

Lastly, we’ve shared this chart before, but a year after the first hike in a new economic cycle saw the S&P 500 Index up a year later the past 8 times, up an impressive 10.8% on average.

For more on rate hikes, the Fed, a rough start to this year, if the bottom of the pullback is priced in, and more, please watch the latest LPL Market Signals podcast with Jeff Buchbinder and Ryan Detrick, as they break it all down.


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All index and market data from FactSet and MarketWatch.

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