US Stock Market Rose During 4 Previous Rate Hike Periods... Average Return 21%

[Asia Economy Reporter Ji Yeon-jin] As the U.S. Federal Reserve (Fed) raised the benchmark interest rate for the first time in three years on the 16th (local time), signaling the 'era of tightening,' an analysis showed that the U.S. stock market recorded an average return exceeding 20% during previous periods of U.S. interest rate hikes.

On the 21st, Daishin Securities analyzed that the S&P 500 index in the U.S. rose by an average of 21.9% during four interest rate hike periods since 1990. The leading sectors were IT, energy, utilities, and healthcare.

Moon Nam-jung, a researcher at Daishin Securities, stated, "The impact of interest rate hikes on the stock market can be divided into before and after the hike. Before the hike, uncertainty about the speed and intensity of the rate increase troubles the stock market, but after the hike, the rate increase is interpreted as confidence in economic recovery, and the stock market tends to rise."

From February 1994 to February of the following year, the U.S. raised the benchmark interest rate seven times over 13 months, increasing it by 3 percentage points from 3% to 6%. The 'first rate hike period' in the early 1990s, based on economic expansion, saw rapid interest rate increases that caused the economic growth rate to fall from 4% in 1994 to 2.7% the following year, but it showed signs of recovery from 1996.

The second rate hike period occurred six times over one year from June 1999 to May of the following year. As concerns about inflation arose with the disappearance of low oil prices and falling computer and semiconductor prices, the stock market surged, and the benchmark interest rate was raised from 4.75% to 6.50%, an increase of 1.75 percentage points.

During the third rate hike period, which lasted 25 months from June 2004 to June 2006, the benchmark interest rate was raised by 4.25 percentage points from 1.00% to 5.25%. This was due to liquidity released by the U.S. monetary easing policy in the mid-2000s flowing into the real estate market, causing housing prices to rise significantly, as well as inflation concerns spreading due to soaring international commodity prices such as crude oil and increased demand from the Chinese economy.

The last rate hike period took place over 37 months from December 2015 to 2018, with nine rate increases. At that time, inflation was below the Fed's target of 2%, but rate hikes were implemented against the backdrop of strong U.S. growth, evidenced by improving investment and employment indicators.

Researcher Moon said, "The Fed has begun normalizing monetary policy through this month's rate hike, signaling liquidity withdrawal, but the behavior of the U.S. stock market during the previous four rate hike periods should provide reassurance," adding, "We are at a point where rate hikes can be seen as confidence in economic recovery." He also said, "Fed Chair Powell, who is proactively calming financial market instability more than in the past, will ensure that the burden of rate hikes does not weigh on the stock market, based on the solid growth of the U.S. economy," and emphasized, "Investors should invest in the U.S. stock market."

This content was produced with the assistance of AI translation services.