Surprise? How the stock market has reacted on day of each Fed rate hike in 2022

The Federal Reserve’s strategy of supersize interest rate hikes gets much of the blame for triggering a bear market in stocks in 2022, but investors might be surprised by a look back at how equites have performed on the days this year when policy makers have slammed on the metaphorical monetary-policy brakes.

The S&P 500
has fallen around 10% overall since Fed Chair Jerome Powell and his colleagues began the rate hiking cycle in mid-March, or three meetings ago, noted analysts at Bespoke Investment Group, in a note.

But the index, they observed, has rallied at least 1.5% on each of the three Fed meeting days during this period.

The large-cap benchmark gained 2.2% on March 16 after Powell’s first rate hike of 25 basis points, or a quarter of a percentage point. On May 4, the S&P rose 3% after Powell’s second hike of 50 basis points, which was the largest such move since 2002. And at the last meeting on June 15, the S&P 500 gained 1.4% on the day following a rate hike of 75 basis points, the largest move since 1994 (see chart below).

Bespoke Investment Group

“You can see that an initial drop occurred right after the 2 PM ET rate decision all three times, but then stocks rallied hard for the remainder of the day once Powell’s press conference began,” the analysts wrote.

Fed-funds futures traders have priced in a 75% probability of another 75 basis point hike on Wednesday, with a roughly 25% chance of a super-size 100 basis point move. The Fed will announce the outcome of the two-day policy meeting at 2 p.m., with Powell’s news conference slated to begin at 2:30 p.m.

A 75 basis point…


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