Cailianshe (Shanghai, editor Huang Junzhi) reported that has experienced its worst week since the pandemic sold out in March 2020 with the Nasdaq 100 index (Nasdaq 100), and investors have had to deal with the potential risks this week from the Fed meeting. The market now expects Fed officials to hint at the meeting that they will raise rates in in March and shrink their balance sheet soon after.
However, some analysts pointed out that based on history, the U.S. stock market has always performed well during the Fed rate hike because the economic recovery often supports corporate profit growth and stock market rises. Therefore, the ending of 2022 is likely to be better than the start. In fact, during the 12 Fed rate hike cycles since the 1950s, the stock market's average annualized gains were 9%, with 11 of which achieved positive returns. The only exception is the period from 1972 to 1974, which coincides with the economic recession from 1973 to 1975.
analysts believe that continued concerns about tightening monetary policy or the spread of the new coronavirus will not prevent the overall market from ushering in another positive year. According to data provided by the media, strategists averagely expect that the S&P 500 will close at 4982 points at the end of 2022, 13% higher than last Friday's closing level.
S&P 500 soared nearly 27% in 2021, achieving double-digit returns for the third consecutive year.
Be careful after three months of hike
According to data from Strategas Securities, historically, it has been beneficial for investors to maintain a cyclical preference before the first rate hike, but the performance in the three months after the rate hike has been quite difficult. Over the past 30 years, the Fed has experienced four different rate hike cycles . The S&P 500 rose an average of 9.3% in the first three months of the first rate hike in these four cycles, but it will fall by about 2% in the three months after the start of interest rate hikes.
may usher in a storm after a moderate pullback
In addition, although S&P 500 index usually performs strongly in the rate hike cycle, the benchmark index experienced an unusually moderate pullback in 2021, which may lead to a bigger decline this year.
Truist said history shows that this year will not be the moderate pullback of 5% or less in 2021, but it is likely to reach double digits. In the 10 years since 1955, the stock market often rose in the second year after a slight correction, but with greater volatility. Truist data shows that the S&P 500's deepest pullback averaged 13%, while the total return averaged 7%.
midterm elections hidden dangers have not been eliminated
Another factor that may hit the stock market this year is the US midterm elections in November. As election results and their impact on policy changes remain uncertain, market returns tend not to be too high until later this year. Data from
LPL Financial shows that since 1950, the average annual pullback of the S&P 500 index has averaged 17.1% in the midterm election year. But the last three months of the midterm election year and the first two quarters of the following year (i.e., the year before the election) are often the strongest quarters in the U.S. four-year election cycle.
Since 1950, the average return of the U.S. stock market in the year before the election has reached 32.3%.
