Fed Rate Hike Cycle Signals Near-Term Stock Pullback, History Shows

NEW YORK — U.S. stocks face near-term downside risk after the Federal Reserve raised its benchmark rate for the first time since 2023, with historical data showing the S&P 500 typically declines a median 2.6% in the three months following an initial hike, according to LPL Financial. In five of six hiking cycles since 1994, S&P 500 drawdowns from peak levels ranged from 8% to 14%, with lows occurring one to three-and-a-half months after the first hike, RBC Capital Markets said. The S&P 500 has gained over 12% year-to-date in 2026 and hovered near record levels. The current cycle is expected to be shorter and shallower than 2022-2023, when the Fed hiked 525 basis points and the S&P 500 fell 25%. Fed funds futures suggest a peak rate of approximately 4.8% with just over 100 basis points of total tightening. Despite initial slides, stocks historically recover. A year after the first hike, the S&P 500 was up a median 6.8%, positive in every cycle except 2022-2023.