Stocks Can Endure Rate Hike Cycles, Past Data Shows: Reuters

Fears over the Federal Reserve's hawkish shift have combined with geopolitical uncertainty to push the S&P 500 into a correction this year. Yet, historical data suggests tighter monetary policy has often been accompanied by solid gains in stocks, reported Reuters.

Offering a faint hope of good news to investors anticipating the central bank to announce the first interest rate increase in more than three years on Wednesday and are pricing some 180 basis points of tightening by the end of the year.

Reuters notes that a Deutsche Bank study of 13 hiking cycles since 1955 showed that the S&P 500 had returned an average of 7.7% in the first year the Fed raised rates.

Truist Advisory Services analysis of 12 rate hike cycles overall found that the S&P 500's posted a total return at an average annualized rate of 9.4% during the length of such cycles, showing positive returns in 11 of those periods.

In a report, Keith Lerner, Truist's co-chief investment officer, stated, "Equities have generally risen during periods where the Fed funds rate is rising because this is normally paired with a healthy economy and rising profits."

Related: Inflation, Fed Rate Hike, War, Pandemic To Steer US Central Bank Policymakers Meeting

Investors worry that this year may be more complicated than most. The S&P 500 has slipped more than 10% to start 2022, and Nasdaq confirmed it was in a bear market, dropping over 20% from its November all-time high.

Morgan Stanley equity strategist Michael Wilson stated if the Fed "is successful in orchestrating a soft landing" for the economy as it raises rates this year, it could lead to much higher bond yields, which "would simply weigh on equity valuations."