How does the market respond to FED rate hikes?

To fight recessions or combat an overheating economy, the FED lowers or raises its rates; respectively. You can see all the FEDs fund rate changes here. On December 16, 2008 the FED lowered its rate to <0.25%. Yes, rates did change a bit from month to month (between +0.07 and +0.20%), but they were effectively zero and the lowest FED funds rate possible. The FED has kept those low rates until December 17, 2015 when it started to raise its rates gradually. The FED is expected to raise its rates today (September 26, 2018) as well.

So how has this Bull Market since the March 2009 lows reacted when a rate hike happened!? First: No rate hikes have been announced in the month of September so far during this Bull. Hence, a rate hike in September would be a rarity from that POV. Second, we do only want to look at the current Bull as to compare apples to apples since each Bull has its own characteristics.

spx fed rate hikes since 2009 market crash

Here are the stats:

  • On December 17, 2015 the S&P500 dropped that day and the day after, then rallied for the next six days back to where it was on December 17, only to see it lose 13% in less than a month.
  • On December 14, 2016 the S&P500 closed lower, chopped around for the next eight sessions, lost at the most an additional ~1%, before continuing to rally.
  • On March 15, 2017 the S&P500 rallied that day, but closed lower ~2.7% lower two weeks and also one month later, before continuing to rally.
  • On June 14, 2017 the S&P500 closed lower that day as well as the next two days (~0.1% lower), rallied for a day and then staged a ~2% over the next two-three weeks, before continuing to rally.
  • On December 13, 2017 the S&P500 closed ~0.6% lower the next day, before continuing to rally.
  • On March 21, 2018 the S&P500 lost ~6% over the next seven trading sessions after the rate hike announcement before its choppy advance started.
  • On June 13, 2018 the S&P500 lost ~3% over the next two weeks, before continuing to rally.

In conclusion: FED rate hike announcements in September are rare, whereas all prior rate hikes led in essence to short-term losses (days to weeks) ranging from <1% to >10%, after which the Bull resumed. 


Arnout, Ph.D.

2014-06-10 17.07.27-small

Founder and President Intelligent Investing, LLC

Vice President NorthPost Partners, LP

Leave a Reply