Why Investors Shouldn’t Count on a Stock Market Rebound After the Fed Pauses Rate Hikes: Mark Hulbert

Mark Hulbert, a columnist for the U.S. financial website “Market Watch”, said on Thursday (27th) that the stock market did not always rebound when the Fed’s policy shifted in the past, but investors waited for the last rate hike in the rate hike cycle to buy stocks. It is expected to usher in a huge rebound.

Investors are waiting for the Fed to pause rate hikes and start cutting rates, the bulls are ready to send a buy signal, they believe that the bull market will start a new round of sharp gains more or less immediately, and the Fed will start the rate hike cycle in March 2022 The losses incurred vary widely.

An analysis of rate hike cycles since 1990 (below) shows that things are not that simple.

The chart shows the performance of the stock market if the last rate hike day in the rate hike cycle is calculated. On average, the S&P 500 (S&P 500 SPX) all posted strong gains in the 1-month, 3-month, 6-month and 12-month periods thereafter.

In contrast, when one-month, three-month, six-month and 12-month returns are calculated from the date of the first rate cut, the stock market average returns, albeit mostly positive, are mediocre.

Take, for example, the Fed’s policy shift prior to the Global Financial Crisis (GFC). The last rate hike before the global financial crisis took place on June 29, 2006, but the first rate cut after the previous hike was not until September 18, 2007. And that rate cut came 22 days before the bull market finally peaked and 14 months after the last rate hike.

Given the distance between the last rate hike and the first rate cut, investors can understand why the S&P 500 did well after the cycle’s last rate hike but was flat after the first rate cut.

The next Federal Reserve interest rate decision-making meeting will be held on May 2-3. According to CME’s FedWatch tool, Fed funds futures predict that the possibility of the Fed raising interest rates by 1 yard next week is about 83%, which is as high as 83%. 72% on Wednesday.

Investors mostly believe that next week may be the last rate hike in this round of rate hike cycle, but analysts warn that people can’t really be sure until the Fed actually cuts interest rates. If next week is the last time the Federal Reserve raises interest rates, investors may have to wait 9 months for the first rate cut according to the historical average, that is, until February next year to find out.