The S&P 500 has gained in every Federal Reserve hiking cycle since the 1990s, according to a Barclays report, though the size of the gain and the sectors that drive it have varied widely. Barclays says investor perception of the Fed's timing plays a critical role in the outcome.
Barclays strategists studied every Fed tightening cycle since the 1990s and found the S&P 500 gained in each one, with annualized returns ranging from 0.1% to 7.8% and a median of 5.6%, measured from the first rate hike to the last. The finding lands as markets increasingly price in between one and two Federal Reserve interest rate hikes by the end of 2026.
Growth backdrop explains the pattern
The pattern holds, Barclays strategists led by Venu Krishna say, because rate hikes typically start when the economy is already expanding. According to the strategists: "these hikes mostly occur in healthy growth environments". Still, the bank cautions that investor perception plays a critical role in the outcome.
2022-2023 broke the mold
During the Fed's 2022-2023 inflation fight, defensive sectors such as real estate, utilities, and financials saw heavy sell-offs, while Tech and Energy surged. Barclays says the split shows that performance in a hiking cycle depends on whether markets see the central bank as ahead of or behind the curve.
Tech and energy carry wide swings
Technology and Energy have historically posted the strongest median annualized returns during hiking cycles, at 14% and 8.8% respectively. But both sectors also showed significant performance dispersion: in their worst cycles, Tech and Energy logged annualized declines of 1.5% and 2%.
Source: Investing.com
Trading involves risk.
Risk Disclaimer
