With Fed rate hike expectations exceeding 90%, investors are bracing for potential S&P 500 volatility as historical data warns of short-term drawdowns during tightening cycles.
The article highlights historical data showing S&P 500 declines following Fed rate hikes, suggesting a bearish short-term outlook.
Nvidia is mentioned in a promotional Stock Advisor ad referencing its past performance.
CME Group is cited as the provider of the FedWatch tool.
Goldman Sachs market strategist's research note on S&P 500 performance after rate hikes is quoted.
Charles Schwab provided historical analysis on S&P 500 drawdowns during rate cycles.
Market data from CME Group's FedWatch tool indicates a 90% probability of a quarter-point interest rate hike at the September 16 FOMC meeting. Historical analysis from Goldman Sachs and Charles Schwab suggests that such tightening cycles often trigger short-term S&P 500 volatility, with average drawdowns ranging from 2% to 14% depending on the pace of the hikes.
Rate hikes increase borrowing costs for businesses and consumers, which can slow economic growth. Additionally, higher yields on risk-free assets like U.S. Treasuries increase the discount rate used in valuation models, lowering the present value of future corporate cash flows.