What History Says About Fed Hikes and Stocks

Friday’s slightly hot Consumer Price Index (CPI) report lifted the bond market’s odds of a rate hike from the Federal Reserve (Fed) this week to near 90%. The positive reactions from stocks and bonds were interesting, suggesting that perhaps market participants have been more worried about rate hikes than they should have been (though the S&P 500 is only about 2% off its all-time high). In this week’s Weekly Market Commentary, we explain how this market reaction makes sense based on history, provide perspective on the latest move up in rates, and share some reasons why the economy is more resilient in the face of rising rates than investors might expect.