BlockBeats reported on Sept. 14 that expectations for a Federal Reserve rate hike in September rose quickly after U.S. core CPI for August heated up again.
Preston Caldwell, senior economist at Morningstar, said core inflation still is not weak enough for the Fed to keep delaying a rate hike, and the probability of a September move has increased noticeably. Earlier hawkish signals from Fed Chair Wosh also reinforced that market view.
A hike does not automatically end a bull market
Jeff Buchbinder, chief equity strategist at LPL Financial, said a rate hike by itself does not mean the end of a bull run in U.S. stocks. Based on six tightening cycles since 1994, the S&P 500 typically comes under pressure in the first few months after the first rate hike. Over the following 12 months, however, the index posted an average gain of 6.7%, while the median gain was even higher at 10.7%.
2022 and 1997 produced very different outcomes
Historically, 2022 and 1997 led to sharply different results. After the Fed started hiking in 2022, the S&P 500 recorded a maximum drawdown of about 25%, with recession worries building afterward. In 1997, after the first rate hike, the S&P 500 climbed 42% over the next year as economic growth and an internet investment boom supported risk appetite.
LPL says the current setup looks closer to the late 1990s
LPL said the current environment is closer to the late 1990s than to 2022. The firm pointed to a U.S. economy that remains resilient, inflation that has picked up again but stays far below its 2022 peak, and an AI investment cycle that may continue to support corporate capital spending.
Still, LPL does not believe U.S. stocks will simply repeat the 42% gain seen in 1997. In its view, the key factor for what comes next is whether rate hikes eventually turn into an economic recession.