Equities after the pause

The historical performance of equities after the cessation of rate hikes by the Federal Reserve came up in the comments to yesterday's post. Today's post takes a look at how the recent stock market advance compares to periods following previous Fed pauses.

About a year ago, Barry Ritholtz over at The Big Picture collected some interesting data about the performance of the broad stock market following a pause in the rate raising cycle. Here are the links to the stories and the pertinent graphic from each piece is shown further below with the most recent data indicated in red:

• Feb 01, 2006 - Once Fed Hikes Stop, Markets Fall
• Apr 19, 2006 - After Final Discount Rate Hike
• Apr 22, 2006 - More Evidence: Fed Pause Not Good for Stocks

This is all interesting data and points roughly to the same conclusion. That is, that broad equity markets are more likely to be lower in the year after the Fed stops raising rates.


The additional data for the most recent pause is striking. Except for the 1989 and 1995 periods - in the middle of the secular bull market that began in 1982 -the most recent period is without precedent and far above the historical average.

While some have rightly attributed the stock market gains over the last few years to a weakening dollar, this has not been the case in the last year - while the dollar has fallen less than four percent on the U.S. Dollar Index during this time, the S&P500 has risen almost 20 percent and the Dow has gained 21 percent.