What If It's More Like 1999?
Pop & Drop Anyone?
The Fed raised rates for the first time in more than four years. Many economists have compared this year and potential rate cycle to 1994. But what if the pattern plays out more like 1999? Since the FOMC focused on the Fed Funds rate to affect monetary policy in the early 1990's, there have been three "initial" rate hikes: 1994, 1997, and 1999. We can hardly call 1997 a rate cycle since there was just one move higher. Nonetheless, the SPX closed lower on the day rates were raised for the first time in 1994 and 1997 but closed higher in 1999.
The similarities to yesterday go beyond the day's close. The initial rate hike in 1999 also occurred on June 30. As well, the SPX was stuck in a trading range just below the year's highs. Will the current chart play out similarly?
The charts are provided below. In '99, the SPX rallied more than 3% after the rate hike to post new highs. From there, the index declined 10% in just 17 days. Obviously, past performance does not indicate future results. But the potential for a "pop and drop" deserves our attention.
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