12-month change in FTSE USA Index between July 1999 (when tightening began) and July 2000: 3.86%
Source: FTSE as of July 1, 2000. Past performance is no guarantee of future results.
At its June 30, 1999 meeting, the Fed raised the federal funds rate by a quarter percentage point, drawing little reaction from US markets. This was the beginning of a tightening aimed at curbing inflation. During this period, the Fed raised rates six times. At the end of 2000, markets rallied on favorable unemployment figures, and during the same year there was significant investment in technology and telecom.
12-month change in FTSE USA Index between June 2004 (when tightening began) and June 2005: 8.92%
Source: FTSE as of June 1, 2004. Past performance is no guarantee of future results.
Stocks were sold off immediately after the Fed announced on June 30, 2004 that it would raise the fed funds rate by a quarter percentage point to 1.25%. The decision was sparked by worries of a housing bubble but after only a few months of weakness stocks resumed their ascent. During the year, the Fed raised rates eight times, by a quarter of a percentage point each time. The Fed continued to raise rates all the way through the end of Fed Chairman Alan Greenspan’s term in July 2006.
These two snapshots illustrate that historically US markets haven’t reacted uniformly to rate hikes, as markets were influenced by other economic factors during these time periods. However, in both instances there was no evidence of a long-term decline, which could indicate that the Fed’s candor with investors – before and after the rate hikes – helped to manage expectations and restore confidence.
If the Fed announces a rate hike, a unique set of factors in today’s economic environment should influence the market’s reaction. The outcome for the market is also likely to be shaped by the extent to which the markets have already factored in the Fed’s guidance that rates will rise.
© 2015 London Stock Exchange Group companies.
London Stock Exchange Group companies includes FTSE International Limited (“FTSE”), Frank Russell Company (“Russell”), MTS Next Limited (“MTS”), and FTSE TMX Global Debt Capital Markets Inc (“FTSE TMX”). All rights reserved.
“FTSE®”, “Russell®”, “MTS®”, “FTSE TMX®” and “FTSE Russell” and other service marks and trademarks related to the FTSE or Russell indexes are trademarks of the London Stock Exchange Group companies and are used by FTSE, MTS, FTSE TMX and Russell under license.
All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by the London Stock Exchange Group companies nor its licensors for any errors or for any loss from use of this publication.
Neither the London Stock Exchange Group companies nor any of their licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Russell Indexes or the fitness or suitability of the FTSE Russell Indexes for any particular purpose to which they might be put.
The London Stock Exchange Group companies do not provide investment advice and nothing in this communication should be taken as constituting financial or investment advice. The London Stock Exchange Group companies make no representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the London Stock Exchange Group companies. Distribution of the London Stock Exchange Group companies’ index values and the use of their indexes to create financial products require a license with FTSE, FTSE TMX, MTS and/or Russell and/or its licensors.
Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back-tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.