November 15th, 2023
With yesterday’s favorable CPI report and the weaker October labor report released early this month, markets are growing convinced that the Fed has completed the rate hike cycle.
Assuming the last rate hike of the current cycle occurred on July 26th, we are now 111 days past that event. The chart below produced by Bloomberg shows the median path of the S&P 500 around the last rate hike of each cycle since 1971. The data is segmented into cycles that produced recessions and those that did not. The S&P 500 is currently about 1.5% below its level on July 26th when the Fed last hiked interest rates. Before the upswing began on October 28th the S&P was down 9.8% from its level on July 26th, almost exactly in line with the median performance of the S&P 500 following the last rate hike in the cohort of cycles where recessions resulted from the rate hikes. In contrast, the median S&P 500 advance at this length of time from the last rate hike was approaching 10% in the cohort where recessions did not occur.