Like in past, will markets rise soon after Fed move?

Markets across the globe took a hammering on Thursday after the US Federal Reserve raised its key interest rate by 75 basis points, the highest since 1994. Historical data however show markets have recovered over three to six months after the rate increases.

Since 2015, the Fed has increased interest rates 11 times, excluding the one on Wednesday. Out of the 11 occasions, the Nifty has declined only four times over one month and three times over three months.

On seven occasions, the Nifty gained one month after the increase in Fed rates. Dow Jones rose in 7 of those 11 instances over the next one month and eight times over three months. “Generally, rate hiking cycles begin with a strong economy which helps corporate earnings growth. During this cycle, stocks, especially from cyclical sectors such as materials, industrials, and energy, will perform well”, said G Chokkalingam, CEO, Equinomics Research & Advisory. “But rising rates may impact growth stocks.”

Between December 2015 and December 2018, the Fed increased rates by 200 basis points. During this period, the Nifty gained nearly 40%, while the Dow Jones index gained 31%. Between March and December 2018, the Fed rate went up by 100 bps, and the Nifty gained nearly 9%.

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