Fed rate hikes and the S&P 500

It’s usual for the S&P 500’s uptrend to moderate following the start of Fed tightening by means of a mid-cycle correction, but it’s unusual for the first hike to coincide with a major market top, according to Ari Wald, Technical Analyst at Oppenheimer.

Wald has looked at the last 13 interest-rate cycles since 1950 and shows that the S&P 500 has been negative 52 weeks later only once (1983) and the largest post-hike drawdown was the 10% decline after the 1999 hike. Overall, looking at the data, Wald expects the S&P’s uptrend to moderate by way of a Q1 2016 correction, but he doesn’t expect a steep and prolonged decline to develop.

See Chart.