As Fed Rates Peak, Are Markets Ready to Take Off?

In 2022, the Fed tightened its vice grip until we squealed. But as interest rates peak this year, markets are in a position for serious growth.

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It stands to reason: if someone is hitting you with a stick, the pain diminishes when they stop hitting you. To confirm this, I looked at four periods of peak interest rates from 1981 to today.

In most cases, markets jumped significantly within a year after the federal funds rate peaked.

Let’s dig into some examples….

Paul Volcker’s Hammer

Federal Reserve Chairman Paul Volcker took interest rates to eyewatering levels in 1981. They peaked at 19% that summer, a far cry from today’s 4.5%.

Markets continued to fall for about a year.

But then, something amazing happened. Volcker crushed inflation and stocks rocketed upward for almost 20 years.

A Stake Through Inflation’s Heart

Like the undead, inflation rose again in 1989. Volcker pushed rates back up to 10% by April, ramming a stake through its cold, black heart.

Markets jumped shortly after, rising about 16% in the next year.

The Go-Go 90’s

After falling to a low of 3% in 1993, the Fed hiked rates to a peak of 6% in the spring of 1995. Chairman Alan Greenspan aimed to cool a red-hot economy and prevent inflation.

Markets ignored him. Stocks went vertical, more than doubling in 4 years.

The Financial Crisis

By the mid-2000’s, the real estate market was out of control. The Federal Reserve took rates from a rock-bottom 1% to 5% by the summer of 2007.

This time, it really was different.

There was no quick rebound even as the Fed took rates to zero. In fact, it took over 5 years for stocks to recover from the financial crisis.

The financial crisis stands out as the worst since the Great Depression. Last year’s S&P 500 return of -18% doesn’t compare to the Great Recession’s -48% bloodbath.

In all, once rates peak, we usually see markets begin to climb in 12 months or less.

As companies look at a future of stable or declining rates, they’re more comfortable borrowing money and making investments. If rates peak mid-year as analysts project, I expect to see markets jump by the end of 2023.

What do you think 2023 holds for markets? Leave a comment at the bottom and let me know!

More on markets:

Tiger Global Losing $185 Million a Day

Is SBF Laundering Money As We Speak?

Why Crypto is Still Massively Overvalued

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Photo: “Governor Jerome Powell speaks at Brookings panel, ‘Are there structural issues in U.S. bond markets?’” by BrookingsInst is licensed under CC BY-NC-ND 2.0


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