The surprising case for investing when the Fed’s raising rates

Fed rate hikes should not automatically be treated as a reason to reduce equity exposure because they have historically occurred during periods of strong nominal growth and have been followed by better stock-market performance than rate cuts.

• The analysis covers every Federal Reserve rate hike and cut since the S&P 500 Total Return Index began in 1989, comparing market performance over the subsequent 1-, 2- and 3-year periods.
• A $10,000 investment in the S&P 500 Total Return Index from September 1989 to September 2026 grew to more than $462,000.
• Adding $1,000 on the day after each of the 52 rate hikes would have produced a portfolio worth more than $962,000, although the investor contributed an additional $52,000 over roughly 37 years.
• Rate hikes generally coincide with strong nominal economic growth and supportive corporate profitability, whereas rate cuts often respond to deteriorating economic conditions.
• The current backdrop does not yet point to tightening severe enough to derail growth: inflation expectations remain relatively contained and job creation is modest.

Takeaway: Investors should distinguish an initial rate hike from the restrictive final hikes that can end a cycle; historically, continuing to add to equities during tightening was more effective than treating every hike as a warning to exit, though the eventual level of rates still matters.