Line chart comparing S&P 500 performance during periods of rising rates.
Left Y-axis: Fed funds rate (upper limit, %), Right Y-axis: S&P 500 Index level; X-axis: 1983-2022.
During the six rate hike cycles shown, the S&P 500 had either roughly flat or positive performance:
- April 1983 to August 1984, when the Fed funds rate advanced from 8.5% to 11.75%, the S&P 500 advanced slightly from about 164 to about 167.
- November 1986 to February 1989, when the Fed funds rate advanced from 5.88% to 9.75%, the S&P 500 advanced from about 249 to nearly 289.
- December 1993 to February 1995, when the Fed funds rate advanced from 3% to 6%, the S&P 500 advanced from about 466 to about 487.
- May 1999 to May 2000, when the Fed funds rate advanced from 4.75% to 6.5%, the S&P 500 advanced from near 1302 to near 1421.
- 2004 to June 2006, when the Fed funds rate advanced from 1% to 5.25%, the S&P 500 advanced from over 1120 to over 1270.
- November 2015 to December 2018, when the Fed funds rate advanced from 0.25% to 2.5%, the S&P 500 advanced from just over 2080 to near 2507.
Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from May 1, 1983 to March 31, 2022. The S&P 500 Index is a market-capitalization-weighted index considered representative of the U.S. stock market. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. Investing in stocks involves risk and their returns and risk levels can vary depending on prevailing market and economic conditions.
Key Takeaways
- Action by the Federal Reserve (Fed) typically has a lagged effect on the economy. Therefore, the initial rate increases in 2022 may not have a meaningful impact until later this year and into 2023.
- Even so, history shows that the S&P 500 Index has risen in the 12 months after the first rate hike, and has been positive in every Fed tightening period over the past 40 years.