Analysis: Rate hikes don't necessarily mean US stocks will fall; Wall Street is eyeing the 1997 playbook for US equities.

BlockBeats news, September 14 — As U.S. August core CPI heated up again, market expectations for a Federal Reserve rate hike in September rose rapidly. Preston Caldwell, senior economist at Morningstar, believes core inflation is still not enough to make the Fed continue delaying a rate hike, and the probability of a September hike has clearly increased; the hawkish signals previously sent by Fed Chair Warsh also further strengthened market expectations.

But Jeff Buchbinder, chief equity strategist at LPL Financial, pointed out that a rate hike itself does not mean the end of the U.S. stock bull market. Statistics on six tightening cycles since 1994 show that the S&P 500 usually comes under pressure in the first few months after the first rate hike, but the average gain 12 months later reaches 6.7%, with the median gain as high as 10.7%.

Historically, 2022 and 1997 produced sharply different outcomes. After the Fed began raising rates in 2022, the S&P 500 suffered a maximum drawdown of about 25%, ultimately accompanied by recession fears; while after the first rate hike in 1997, the S&P 500 rose 42% over the following year, with economic growth and the internet investment boom supporting risk appetite.

LPL believes the current environment is closer to the late 1990s than to 2022: the U.S. economy remains resilient, and although inflation has reheated, it is far below the 2022 peak, while the AI investment cycle may also continue to support corporate capital expenditure. However, LPL does not believe U.S. stocks will simply replicate the 42% gain of 1997, and the key factor truly determining the subsequent market trend remains whether rate hikes ultimately evolve into an economic recession.