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How the S&P 500 has moved with each rate hike

Investors were unhappy.

September 21, just minutes after the Federal Reserve raised interest rates for the fifth straight year moment, the S&P 500 lost 1.6%. Were the markets in freefall?

No, the index has started to rise.

30 minutes later, the index hit session highs. What changed? Have investors suddenly become happy with the Fed’s inflation-fighting actions?

No, he started falling again.

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

The tension of that September afternoon has not dissipated as the Federal Reserve Board meets again this week. The central bank is expected to raise interest rates another 0.75 percentage points on Wednesday.

No one can guess where the markets will move after this week’s announcement. But the stock market’s response to the last five rate hikes may provide some clues.

Despite fears that the Fed’s aggressive interest rate hikes could push the economy into recession, the S&P 500 rose more than 1% every day except one when the Fed announced rate hikes.

Although it was the group’s only down day, perhaps the most relevant stock market response was in September, which took the fed funds range above 3%. With another 0.75 percentage point increase on Wednesday, the range will reach 4% for the first time since 2008.

Economists say the full impact of interest rate changes can take one to three years to trickle down to an economy, but mounting data suggests the five increases are already to be smelled :

Mortgage rates above 7%: The highest rates in two decades added about $1,000 a month to a mortgage on a $427,000 new home, according to Reatlor.com.

Home sales continue to fall: Home sales have fallen for eight consecutive months, according to the National Association of Real estate agents. Sales were down 24% compared to September 2021.

The pace of inflation is slowing: The consumer price index fell to 8.2% in September, its slowest annual pace since February. That’s still well ahead of the Fed’s 2% target, and the base rate – excluding the food and energy components – has continued to rise.

Perhaps the biggest question for investors is what Fed Chairman Jerome Powell might say in his comments after the 2 p.m. rate announcement — much like what happened after the past four Fed meetings.

Thursday’s first positive GDP figure for the year offered the last significant data point. How will Powell and the Fed see it?

Disturbing for investors: Thursday’s report showed the economy grew 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 that the labor market remains strong. Those reports and another high inflation reading on Friday could encourage Powell to say the economy needs and can handle 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 growth in the third quarter was a 1.4% drop in residential investment (mostly houses) while consumer spending slumped. slowed to 1.4% adjusted for inflation, which included lower spending on goods. Consumer spending accounts for about 70% of the economy.

This could push up stocks. With some signs of an economic slowdown, Powell might suggest slowing or pausing future increases to see if the inflation rate comes down.

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USA Today

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