Fed Begins a Hiking Cycle
First rate hike after an easing period
The first rate hike in a new tightening cycle marks a regime transition. Since 1980, there have been 8 hiking cycles. Equity returns during the first 12 months of hiking have been positive in 6 of 8 cases.
| Date | 1M return | 1Y return | 5Y return |
|---|---|---|---|
| 1954-08-02 | -3.7% | +38.5% | +95.3% |
| 1956-09-04 | -3.4% | -6.4% | +43.0% |
| 1958-09-02 | +4.1% | +22.6% | +51.3% |
| 1961-02-01 | +3.3% | +12.8% | +49.7% |
| 1963-08-01 | +5.0% | +20.2% | +43.3% |
| 1965-12-01 | +1.0% | -12.1% | +0.5% |
| 1967-12-01 | +1.2% | +6.8% | +26.4% |
| 1970-04-01 | -9.5% | +11.1% | -7.2% |
| 1972-04-03 | -1.3% | +1.2% | -8.3% |
| 1974-04-01 | -1.1% | -11.4% | +9.9% |
| 1976-05-03 | -0.7% | -2.0% | +31.8% |
| 1978-05-01 | -0.4% |
What history says
Editorial commentary written by ALAN analysts. Figures cited below are analyst-authored context — they are not derived from the chart above and may reflect different windows or sources.
In 6 of 8 hiking cycles since 1980, the S&P 500 was higher 12 months after the first hike. The Fed hikes because the economy is strong — that strength supports earnings.
The danger period is the final 2-3 hikes when policy becomes restrictive. Early hikes merely remove accommodation. The market peaks an average of 6 months before the last hike.
Front-end rates rise faster than long-end rates during hikes (curve flattening). Short-duration bonds and floating-rate notes outperform long-duration fixed-rate bonds.
Early in a hiking cycle, the higher-conviction adjustment is in bonds, not stocks: consider tilting fixed income toward shorter maturities and floating-rate exposure, which have outperformed as front-end rates climb, while leaving equity targets alone — first hikes have usually arrived with an economy strong enough to keep supporting earnings.