All eyes will be on the Federal Reserve this Wednesday as investors around the world await news on the Fed’s decision to raise (or not raise) the Fed Funds target rate. We believe a rate increase is likely. So, what can we expect from the US equity market?We took a look back at S&P 500 performance over several similar historical points. What we found was that, on average, stocks perform well during the four quarters leading up to an initial rate increase and in the four quarters that follow the initial hike.
It is worth noting that rising interest rates have compressed S&P 500 price-to-earnings multiples in the past. However, current interest rates will be rising from historically low levels during this cycle. Additionally, Fed communication on the pace of tightening after the initial hike should remain an influential factor for US equity market volatility and performance.
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Market conditions are extremely fluid and change frequently.
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