Fed markets: How S&P 500 has moved with each rate increase

Fed markets: How S&P 500 has moved with each rate increase

On Sept. 21, just minutes after the Federal Reserve raised interest rates for the fifth consecutive time, the S&P 500 shed 1.6%. Were the markets in free fall?

30 minutes later the index jumped to session highs. What changed? Did investors suddenly become satisfied with the Fed’s inflation-fighting actions?

No, it started falling, again.

In just over an hour, the S&P 500 fell from its peak to close at the lowest point of the day. Had the Fed gone too far this time? Would the 0.75 percentage point increase spark a recession and lower corporate profits?

How the stock market swung after the September rate increase

The tension of that September afternoon hasn’t dissipated as the Federal Reserve Board meets again this week. The central bank is widely expected to raise interest rates by another 0.75 percentage point on Wednesday.Where markets will move after this week’s announcement is anyone’s guess. But the stock market’s response to the last five rate hikes may provide some clues.Despite concerns that the Fed’s aggressive interest rate hikes could send the economy into a recession, the S&P 500 rose more than 1% on all but one of the days when the Fed announced rate increases .

How the market has responded to rate increases

Although it was the only down day of the bunch, perhaps the most relevant stock market response was September’s, which brought the federal funds range above 3%. With another 0.75 percentage point increase on Wednesday, the range will touch 4% for the first time since 2008.

How the economy has reacted to rate increases

Economists say the full impact of interest rate changes can take one to three years to trickle through an economy, but data piling up suggest the five increases are already being felt:Mortgage rates above 7%: The highest rates in two decades have added about $1,000 per month to a mortgage on a new $427,000 home, according to Reatlor.com.Home sales continue to fall: Home sales have fallen for eight consecutive months, according to National Association of Realtors. Sales were down 24% from September 2021.Inflation’s pace slows: The consumer price index dipped to 8.2% in September to its slowest annual pace since February. That’s still well ahead of the Fed’s 2% target, and the core rate – without food and energy components – continued to increase.

A closer look at the reaction of each rate increase

How will Powell view the GDP report and rate increases ?

Possibly the biggest question for investors is what Fed Chairman Jerome Powell might say in his comments following the 2 p.m. rate announcement – much like what happened following the past four Fed meetings.Thursday’s first positive GDP number of the year offered the latest significant data point. How will Powell and the Fed view it?Troubling for investors: Thursday’s report showed the economy grew at a modest 2.6% in the third quarter after two negative quarters. On the same day, the Labor Department reported relatively low initial jobless claims of 217,000, showing the job market remains strong. Those reports and another high reading on inflation Friday could embolden Powell to say the economy needs and can withstand more rate increases .Light at the end of the tunnel for investors: Digging a little deeper into the GDP report, one of the biggest drags on third-quarter growth was a 1.4% decline in residential investment (mostly homes) while consumer spending slowed to an inflation-adjusted 1.4%, which included lower spending on goods. Consumer spending represents about 70% of the economy.That could send stocks up. With a few signs of a slowing economy, Powell could suggest slowing or pausing future increases to see whether the inflation rate subsides.

usatoday.com