U.S. stocks and economy: How have rate hikes historically affected the markets?
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Federal Reserve tightening has historically brought near-term volatility, but equities tended to often recover after early drawdowns.
- The pace matters: slow hiking cycles have historically produced milder market declines and stronger economic outcomes than fast cycles.
- A resilient labor market and firm coincident indicators support a gradual Fed approach, with volatility potentially creating opportunities for disciplined investors.
Global stocks and economy: Are European stocks worth a second look?
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Global growth has picked up and Europe's market is cyclically oriented, with 62% of the MSCI Europe Index in economically sensitive cyclical sectors as of August 31, 2026.
- European earnings have rebounded and broadened: STOXX Europe 600 earnings grew 23.9% in the second quarter of 2026, and 2026-27 estimates are being revised higher according to Bloomberg data.
- Valuations are less demanding than the U.S., and Europe's total-yield edge is widening as artificial intelligence (AI) capital spending drains U.S. hyperscaler free cash flow. Hyperscalers are companies that design, own, and operate a large portion of data center networks to provide cloud computing at scale.
- Europe may add diversification to a portfolio of U.S. equities, with a lower concentration in the top 10 companies in the MSCI Europe Index relative to the top 10 stocks in the S&P 500 index, and a falling correlation to U.S. stocks.
- But risks could include slower global growth, a tightening of liquidity conditions, a stronger U.S. dollar, geopolitical tensions, energy-price shocks, and structural challenges within the eurozone.
See more: The Road Up and the Road Down are the Very Same Road
Fixed income: Fed hikes rates for the first time since 2023
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Fed policymakers unanimously voted to raise rates 25 basis points, the first hike since 2023, at the September FOMC meeting.
- Major indexes initially rose on the news, while Treasury yields flattened with the 10-year Treasury yield near 19-year highs. But after Fed Chairman Kevin Warsh spoke at his press conference, major indexes surrendered earlier gains and then plunged with half an hour left in the session.
- In addition, 16 members of the FOMC expect at least one more rate hike this year, according to the Fed's Summary of Economic Projections, also known as the "dot plot."
- This isn't likely to be "one-and-done" for hikes, as the Fed rarely hikes or cuts a single time, but it likely also isn't the start of an extended hiking cycle.
This material is intended for general informational and educational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.
Not intended to be reflective of results you can expect to achieve and are not intended to be, nor should they be construed as, a recommendation to buy, sell, or continue to hold any investment.
All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Past performance is no guarantee of future results.
Investing involves risk, including loss of principal.
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Lower rated securities are subject to greater credit risk, default risk, and liquidity risk.
International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate this risk.
Diversification and asset allocation, strategies do not ensure a profit and do not protect against losses in declining markets.
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