The Fed hiked interest rates last week.
This surprised no one.
How does the stock market respond after a hike?
At the beginning of a rate hike cycle, the market performance isn’t great. It averages just over 1% in the year following the first rate hike. Overall, the verdict on where the market headed in the past is mixed.
CME Group’s Fed Watch Tool currently puts the odds in favor of additional rate hikes. This changes daily, but it’s showing nearly 90% odds that there are one or two more quarter-point hikes before the end of the year.
What matters for the stock market in a rising rate environment (if that continues) is usually the pace at which the hikes come. Turning Point Market Research points out that fast rate hikes tend to be worse for the market than slow hikes over the following year.1
We will wait and see what that pace is.
While that may not be great news for stocks in the short term, we’re a wealth management firm, and we don’t only focus on the short term anyway. Don’t forget the wise words of Sam Ro: “The long game is undefeated.”2
Here’s some good news right now. While the stock market has gone higher this year, the growth of earnings has outpaced it significantly. Earnings have grown at nearly twice the rate of the market’s total return.
This is how the market can get cheaper even as it rises. That supports the argument that the market is not overpriced.
Remember: rising interest rates can hurt borrowers, but they can help savers. All of your money likely has a different purpose, so know what that purpose is and then put the money to work in the appropriate buckets.
If you or someone you know needs help, reach out to us at www.liveandleavealegacy.com.
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Sources:
1. Referenced by Daily Chart Book on September 16, 2026. Accessed online.
2. “The first question to ask when a markets expert speaks”, August 25, 2024. Accessed online.