History of stocks after the Fed hikes
Sticky inflation and resilient growth have revived monetary tightening, increasing the risk of higher-for-longer rates and near-term volatility. We continue to believe economic resilience and strong corporate profits should continue to provide a favorable backdrop for stocks, and would use periods of market weakness to add selectively to equities. Additionally, owning real assets can help hedge against inflation.
3 mins Reading time
Published on 22 September 2026
Sticky inflation and resilient growth have pushed the Federal Reserve back into a tightening mode for the first time in three years. Last week’s policy announcement suggested that more hikes may lie ahead, raising the risk of higher-for-longer rates. Historically, equities often struggle in the first few months of a hiking cycle as markets adjust to tighter financial conditions, then begin to recover as earnings and growth expectations remain intact.
With yields elevated, policy uncertainty still a factor and midterm election season approaching, near-term volatility could persist, even if the broader economic backdrop remains constructive.
Because we do not expect a recession and continue to foresee resilient earnings growth, we believe periods of market weakness should be viewed as buying opportunities. In addition, we recommend allocating to real assets to hedge against structurally higher inflation and to benefit from the ongoing capital expenditure cycle, which is helping support resilient growth and, in our view, still offers further upside.
1004796 Exp : 22 September 2027
YOU MIGHT ALSO LIKE
Higher inflation and elevated interest rates typically weigh on corporate profitability, yet corporate margins continue to climb to record highs. While that strength is evident both in the U.S. and abroad, U.S. outperformance versus Europe is now the widest on record. Stronger margins have helped contribute to better-than-expected earnings and reinforce U.S. equity leadership. The question now is whether that strength can persist?
Higher interest rates have become a frequently cited risk to corporate earnings and the economy. The conventional thinking is straightforward: when borrowing costs rise, companies face higher interest expenses, profits come under pressure, and economic growth slows. While there is truth to that relationship, the current cycle may differ from investors’ expectations.
Both the dot-com era and the rise of artificial intelligence suggest that early productivity data can understate the actual economic impact of transformative technologies. In the case of the internet, later revisions to productivity gains surpassed early estimates. The same may prove true for AI, implying stronger support for growth.
Resilient economic growth, sticky inflation driven by higher energy prices and continued geopolitical uncertainty are complicating the path back to central-bank price targets. We believe policymakers are likely to adopt a tightening bias but remain data dependent.
