The Fed Is Embarking on a Rate-Hike Cycle. History Says This Is How the Market Will React.
The market tends to pull back in the first six and 12 months after the Fed begins hiking.
Overview
The Federal Reserve's monetary policy committee voted unanimously last month to raise its benchmark interest rate, the federal funds rate, by a quarter percentage point. Just about everyone believes that the rate hike was not a one-and-done event. Futures traders are pricing in one to two more quarter-point hikes by the end of this year (there are two more meetings), and several more in 2027.
Meanwhile, the yield on the two-year Treasury note has risen to 4.82%. Because that yield is the most sensitive to the Fed's interest rate, it suggests that the bond market collectively believes the Fed will raise its rate three to four more times over the next 12 months.
Details
Finally, the members of the Fed's policy committee set projections that expect more rate hikes. So it seems the Fed is embarking on a full-on rate-hiking cycle. The question for investors, then, is: How will the stock market react to that cycle?
Source
Originally published at www.fool.com.