S&P 500 Expected to Rally by Double-Digits Following Rate Hike Peak

According to Yahoo News, markets are anticipating the end of the Federal Reserve's rate hikes, which could lead to a double-digit increase in the S&P 500 over the next year. Historically, rate 'tops' have been followed by significant gains for stocks, according to DataTrek analyst Jessica Rabe. In her recent note, Rabe stated that US equities typically experience double-digit growth and surpass the long-run average price return of 9-10% in the year following the Fed's cessation of near-term rate increases. The only exception to this trend occurred after the Fed's last rate hike on March 15, 2000, during the dot-com bubble burst. Examining previous peaks in rate hike cycles reveals a pattern of strong stock performance. For instance, the S&P 500 surged 35.2% in the year following the end of a rate hike cycle in January 1995. Similarly, a rate top in June 2006 led to a 20.7% increase in the year after, and the benchmark index spiked 27.9% over the next year after the rate hike cycle concluded in December 2018. Based on these figures, the average growth in the S&P 500 after a rate top is 17.4%. Rabe suggests that the S&P 500, which has remained relatively unchanged since July 26th, could rally by 17% through the first half of 2024. The index was at 4,547 on Wednesday morning, up approximately 1% in the past five days. Following a subdued CPI report last week, the market rallied on growing conviction that the Fed was done hiking rates. Experts like Jeremy Siegal expect rate cuts to begin as early as March next year. However, Rabe notes that stock returns are 'mixed' in the months following central bank interest rate cuts, with markets typically rallying in the month after the cut but experiencing varied performance in the year after cuts began in 2001 and 2007.