First Fed Hike of a Cycle
18 first hikes since 1946: median six-month drawdown -7.9% from the hike-day close against -4.1% for any day; the next three months are the weak stretch.
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What the S&P 500 has done after the Fed's FIRST rate increase of a cycle, eighteen times since 1946: the maximum drawdown over the next six and twelve months measured from the hike-day close, forward returns at one, three, six and twelve months, and every figure next to the base rate for any day. The three months after a first hike are the weakest stretch (higher 28% of the time against a 66% base rate) and the median six-month drawdown is about twice normal; a year later the index is higher two times in three. Split by the speed of the cycle that followed, which is what actually separates the mild cases from 1973, 1987 and 2022. The widely quoted "never less than -4.4%" line is shown for what it is: true from the prior peak, not from the price a holder owns at.
- 18 signals since 1945-01-01.
- 18 first hikes since 1946: median six-month drawdown -7.9% from the hike-day close against -4.1% for any day; the next three months are the weak stretch.
When to run this study
Run in the weeks around a meeting where the futures market prices a first hike of a new cycle, and for the year after one. It answers the question a holder asks — how far down from here, and for how long — from the hike-day close rather than from the prior peak, and puts every number next to what any random day has delivered. The three months after a first hike are the weak stretch; the year after is a little below normal, not a bear market. It does not know whether a hike will happen: add the date once it has.
Historical results
After a first hike (18 cycles since 1946) against any day
| Window | N | Median | Positive | Any day: median | Any day: positive | Edge (pts) |
|---|---|---|---|---|---|---|
| 1M | 18 | -0.30 | 44.40 | 1.10 | 61.50 | -17 |
| 3M | 18 | -1.80 | 27.80 | 2.70 | 66.20 | -38.40 |
| 6M | 18 | 4.10 | 55.60 | 5.10 | 70 | -14.50 |
| 12M | 18 | 6.50 | 66.70 | 10.30 | 73.70 | -7.10 |
| Max drawdown 6M | 18 | -7.90 | -4.10 | |||
| Max drawdown 12M | 18 | -9.10 | -5.50 |