Markets brace for a Fed rate hike as historical data suggests a high probability of a stock market correction following the start of new tightening cycles.
Historical data shows S&P 500 often corrects after first Fed rate hike in a tightening cycle.
Nasdaq Composite historically suffers double-digit drawdowns after initial rate hikes.
Dow Jones Industrial Average has corrected after past tightening cycle starts.
CME Group is mentioned as a holding of The Motley Fool, not directly impacted by the Fed news.
Wall Street anticipates a quarter-point interest rate hike from the Federal Reserve this week, signaling the start of a new tightening cycle. Historical data indicates that the S&P 500, Nasdaq, and Dow Jones have frequently suffered double-digit drawdowns in the three months following initial rate increases. Despite strong corporate earnings growth, investors are bracing for potential volatility as borrowing costs rise.
The Federal Reserve raises rates to combat inflation that remains above its 2% target, aiming to restore price stability in the economy.
Over the last 25 years, the S&P 500, Nasdaq, and Dow Jones have historically entered correction territory, averaging double-digit losses within three months of the initial hike.