The Clap
The Federal Reserve meets today & tomorrow when it’s expected to announce the first of several interest rate hikes throughout 2022.
Stocks now
The S&P 500 index is facing its worst start since a sell-off fueled by the COVID-19 pandemic in March 2020. With the Fed expected to raise rates, it’s worth asking if the S&P 500, which is still nearly 90% higher since plunging at the start of the pandemic, has run out of momentum.
Previous hikes
History shows that US stocks are set for increased volatility after raising interest rates. The past eight times the Fed raised interest rates, the S&P 500 has been higher a year after the rate hike each time, according to an analysis by LBL Financial.
Challenges
Higher oil prices are correlated with higher interest rates. The Fed faces a difficult dilemma, with the rise in crude oil prices amid the Russia-Ukraine crisis.
The oil shocks preceded the economic downturns, in the mid-seventies, the early eighties, & early nineties. But other recessions, such as post-September 11, 2001 & the global financial crisis of 2008, were not directly caused by rising crude oil prices.
Stocks previously
In the past three decades, the Federal Reserve has raised interest rates four times, & none resulted in any harm to stocks.
Technology stocks, which have seen sharp falls this year, have been among the best-performing sectors of the S&P 500 during four rate-raising cycles.
