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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.
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.