With the Federal Open Market Committee expected to announce a hike in the federal-funds rate this Wednesday, investors have been on edge over the move's potential impact on stock prices.
There have been nine times in the past 50 years that theFederal Reserve raised short-term interest rates more than once in a rate-tightening cycle (using the discount rate from 1967-1990, and the fed funds rate thereafter). Six months after these initial rate increases, the S&P 500 declined about 3 percent, having fallen in price five times, but rising four times. Stocks slipped the most within the first six months following the first rate hike in 1987, while climbing the highest after the first hike in 1980.
The greatest number of sectors rose in price following the 2004 rate-tightening cycle. Digging a little deeper, we see that, on average, S&P 500 growth stocks declined less than value stocks, but posted similar frequencies of outpacing the broader market. On a sector basis, energy, information technology, and telecom services recorded average price increases during these periods, each beating the market more than 50 percent of the time (telecom services' history only covers four of the nine cycles examined).