What History Shows About Stocks and Chips During Fed Rate Hikes
How does the stock market perform when the Federal Reserve raises interest rates? It is one of the most-searched questions in investing, and in 2026 — with the Fed's dot plot flipping back toward a hike for the first time in years — it is no longer academic. This page is the reference table we wished existed: every Fed rate-hike cycle since 1983, with the exact dates, the size of each tightening campaign, how the S&P 500 performed during the cycle, the worst drawdown along the way, and what happened in the 12 months after the final hike. Because chip stocks now set the tone for the whole market, we also track the PHLX Semiconductor Index (SOX) through every cycle it has existed for.
It is the hiking-cycle companion to our complete reference table of every Fed rate-cut cycle since 1980. Bookmark whichever direction the Fed is moving.
The short answer
Across the seven multi-meeting hiking cycles since 1983, the S&P 500 rose during every single one, with an average price gain of about +10% from the month before the first hike to the month of the final hike. The 12 months after the final hike were even better: an average of roughly +20%, positive in seven of eight cases. The lone exception — the 12 months after May 2000 — had less to do with the hikes themselves than with the bubble they ended.
That is the average. The path is uglier than the average: five of the eight cycles included a double-digit drawdown while the Fed was still hiking, and the 2022 cycle packed a 25% bear market inside an ultimately positive two-year window. Rate hikes rarely kill bull markets on their own. What kills bull markets is what the hikes eventually expose — overvaluation in 2000, over-leverage in 2007, duration risk in 2022.
The complete reference table: every Fed hiking cycle since 1983
| Cycle | First hike | Final hike | Fed funds path | Hikes | S&P 500 during cycle | Worst drawdown during | S&P 500, 12m after final hike |
|---|---|---|---|---|---|---|---|
| 1983–84 | Mar 1983 | Aug 1984 | 8.50% → 11.75% | ~10 moves | +13% | ≈ −14% | +13% |
| 1988–89 | Mar 1988 | Feb 1989 | 6.50% → 9.75% | ~14 moves | +8% | ≈ −8% | +15% |
| 1994–95 | Feb 4, 1994 | Feb 1, 1995 | 3.00% → 6.00% | 7 | +1% | ≈ −9% | +31% |
| 1997 (one-off) | Mar 25, 1997 | Mar 25, 1997 | 5.25% → 5.50% | 1 | — | — | +46% |
| 1999–2000 | Jun 30, 1999 | May 16, 2000 | 4.75% → 6.50% | 6 | +9% | ≈ −12% | −12% |
| 2004–06 | Jun 30, 2004 | Jun 29, 2006 | 1.00% → 5.25% | 17 | +13% | ≈ −8% | +18% |
| 2015–18 | Dec 16, 2015 | Dec 19, 2018 | 0.25% → 2.50% | 9 | +21% | ≈ −20% | +29% |
| 2022–23 | Mar 16, 2022 | Jul 26, 2023 | 0.25% → 5.50% | 11 | +5% | ≈ −25% | +20% |
How to read it: "S&P 500 during cycle" is the price change from the month-end before the first hike to the month-end of the final hike. "12m after" runs from the month-end of the final hike. All figures are price returns (no dividends), rounded to the nearest percentage point; drawdowns are approximate peak-to-trough declines inside the cycle window. Pre-1994 cycle boundaries are less precise because the Fed did not announce target changes until 1994 — full details in the methodology notes at the bottom. The primary source for every policy move is the Federal Reserve's own record of open-market operations.
Two numbers deserve a second look. First, 1994–95: the S&P 500 went essentially nowhere for a year while the Fed doubled the funds rate from 3% to 6% — and then returned +31% in the twelve months after the last hike, launching the great late-90s bull run. Second, 2022–23: the fastest tightening since the early 1980s produced the worst during-cycle drawdown in the table, yet a buyer on the day of the first hike was up about 5% by the final hike and more than 20% two years in.
Why stocks usually rise while the Fed is hiking
The pattern looks counterintuitive until you remember why the Fed raises rates: because the economy is running hot. Hiking cycles overlap with strong nominal growth, strong earnings, and tight labor markets. Three mechanics do most of the work:
- Earnings outrun the multiple. Higher rates compress valuation multiples, but hiking cycles coincide with earnings expansions. From 2004 to 2006 the S&P 500's price-to-earnings ratio actually fell while the index gained 13% — profits simply grew faster than the discount rate rose.
- Pace beats level. Markets price the destination quickly; what hurts is surprise. The gradual, telegraphed cycles (2004–06's seventeen consecutive quarter-point moves, 2015–18's nine hikes over three years) produced steady gains. The violent ones (1994's surprise 75-basis-point move, 2022's four consecutive 75-point hikes) produced the flat or negative stretches.
- The starting point matters. Cycles that began from emergency-low rates (2015, 2022) forced the biggest repricing of long-duration assets, which is why the deepest during-cycle drawdowns in the table are the two most recent ones.
The federal funds rate is, in the end, a brake applied to an accelerating car. The brake itself rarely causes the crash; the question is always what the car was about to hit.
The path: chop first, payoff later
Averages hide the sequence. Overlaying the S&P 500's path from the first hike of the last five major cycles shows a consistent rhythm: a rough first six months, then a decisive second year.
Three months after the first hike, four of the five cycles were flat or underwater; six months in, the 2022 cycle was down 21% and the 1994 cycle had absorbed its whole -9% drawdown. But by month 24, four of the five were higher — 1994 by 36%, 2015 by 31% — and the only loser was 1999, where the two-year mark landed in the middle of the dot-com unwind. If you compress that history into one sentence: the first two quarters of a hiking cycle are where the drawdowns live; the payoff, when it comes, arrives in year two.
That rhythm is worth keeping next to our table of the 20 worst days in S&P 500 history — several of them, including the 1987 crash and the worst days of 2022, happened while the Fed was tightening or had just finished.
Chip stocks: the market's high-beta passenger
Semiconductors are the purest cyclical-growth expression in equities, which makes them the most interesting sector to watch during a tightening campaign. The SOX index only launched in December 1993, but it has now lived through five hiking cycles:
| Cycle | SOX during cycle | S&P 500 during cycle | What was happening in chips |
|---|---|---|---|
| 1994–95 | ≈ +30% | +1% | PC boom; memory shortage; semis were the market's best group |
| 1999–2000 | ≈ +120% | +9% | Dot-com and telecom capex mania |
| 2004–06 | ≈ −5% | +13% | Post-bubble digestion; chips were dead money |
| 2015–18 | ≈ +70% | +21% | Cloud data-center buildout; early AI training demand |
| 2022–23 | ≈ +10% | +5% | Crypto/PC bust in 2022 (SOX ≈ −45% peak-to-trough), then the ChatGPT moment |
The lesson is that the capex cycle dominates the rate cycle. When a secular buildout is underway — PCs in 1994, the internet in 1999, cloud in 2017, AI today — chip stocks have shrugged off hundreds of basis points of tightening and beaten the index by 30 to 110 percentage points. When the buildout is digesting (2004–06), no amount of easy or tight money helps. That is the exact tension in 2026: AI infrastructure spending is still the market's engine, but it is funding-sensitive, and names like NVIDIA (NVDA), Micron (MU), Broadcom (AVGO) and AMD now carry index-level weight. We covered the demand side of that trade in our Micron HBM3E deep dive and the Broadcom AI-ASIC backlog preview — and the risk side in Korea's AI-chip reckoning, where rate fears and AI concentration collided in a single session.
The exceptions worth memorizing: 1987, 2000, 2022
Every rule in this table has three famous stress tests.
1987. The funds-rate cycle of 1988–89 gets the table row, but the Fed was already tightening through 1987 — including a discount-rate hike weeks before October 19 — when the S&P 500 fell 20% in one day. The crash is the permanent reminder that tightening into a levered, crowded market can break things fast, even when the economy is fine. The index still finished 1987 slightly up, and the 1988–89 cycle that followed fits the normal pattern.
2000. The only negative "12 months after" in the table. The Fed's final 50-point hike in May 2000 landed two months after the Nasdaq's top. The hikes did not cause the -12% year that followed — the bubble did — but May 2000 is the template for the bear case: when a hiking cycle ends because something broke rather than because inflation is beaten, the end of the hikes is not the end of the trouble.
2022. The deepest during-cycle drawdown since at least 1983 (-25%), driven by the fastest pace of tightening since Volcker plus a starting point of zero. And yet: the cycle window still finished positive, and the 12 months after the July 2023 final hike returned +20%. Even the worst modern hiking cycle ultimately rewarded investors who stayed.
Where the 2026 Warsh cycle would fit
As of mid-2026, the funds rate sits at 3.50–3.75% and the June dot plot flipped to project a hike — the first tightening signal of the Warsh Fed. We covered the meeting itself in Warsh's first Fed meeting: the dot plot flips to hike and the market reaction in our June 2026 FOMC breakdown.
If a 2026 cycle begins, the historical rhymes cut both ways:
- The reassuring rhyme: it would start, like 1994 and 2015, with a strong economy and strong earnings — the configurations that produced +31% and +29% twelve-month-after returns. A hike from 3.75% is also a far smaller proportional shock than 2022's liftoff from zero.
- The uncomfortable rhyme: it would land on a market with record index concentration in seven AI-linked mega caps and a capex boom that assumes cheap capital — closer to the 1999 setup, where the sector leading the market up was also the sector most exposed to the eventual repricing.
History's honest summary: the first hikes are usually a buyable scare, the middle of the cycle is chop, and the real risk arrives only if the Fed has to keep going until something breaks. Watch the pace, not the first headline.
How to track a hiking cycle with SimianX
A reference table tells you the base rates; it cannot watch the tape for you. SimianX's Live Command Room streams AI-agent analysis on every FOMC day, and our autopilots run multi-agent strategies that adjust exposure as macro conditions shift — you can see how 30 AI models from 6 providers are actually positioned on the AI model leaderboard. If you want the macro picture delivered instead of monitored, the Auto Digest merges four agents into one daily briefing. Rate cycles also move crypto — we keep the companion table of Bitcoin's performance after every Fed rate cut since 2019 for the other direction, and pricing starts free.
Frequently asked questions
Do stocks go up when the Fed raises rates?
Historically, yes. The S&P 500 rose during all seven multi-meeting Fed hiking cycles since 1983, averaging about +10% from first hike to final hike. But the averages include double-digit drawdowns along the way in five of eight cycles — positive endpoints, uncomfortable journeys.
What happens to the stock market after the Fed's last rate hike?
The 12 months after the final hike averaged roughly +20% across the eight cycles since 1983, positive in seven of eight. The exception was May 2000, when the hiking cycle ended into a bursting bubble.
Should you sell stocks when the Fed starts hiking?
History argues against selling the first hike: two years after the first hikes of 1994, 2004, 2015 and 2022, the S&P 500 was higher every time — 1999 is the lone two-year loser. The first six months, however, have usually been the roughest stretch, so the record favors patience over either panic or leverage.
How do semiconductor stocks perform during rate hikes?
It depends on the chip capex cycle, not the rate cycle. The SOX beat the S&P 500 by 30–110 percentage points during the 1994, 1999 and 2015 hiking cycles when secular buildouts were running, lagged badly in 2004–06 digestion, and did both in 2022–23 — a 45% crash, then an AI-driven recovery.
Is the Fed raising rates in 2026?
As of the June 2026 FOMC meeting, the funds rate stands at 3.50–3.75% and the dot plot projects one hike in 2026 — a projection, not a promise. The meeting-by-meeting calendar and projections are published by the Fed; our June 2026 FOMC story breaks down what changed.
Methodology & data notes
- Cycle definitions: a hiking cycle is a sequence of federal funds target increases without an intervening cut. Dates from 1994 onward are exact FOMC action dates from the Federal Reserve's open-market operations record; the 1983–84 and 1988–89 boundaries follow the effective funds rate, since targets were not announced before 1994. The single hike of March 1997 is listed separately as a one-off.
- Return convention: S&P 500 price returns (dividends excluded), measured month-end to month-end — from the last month-end before the first hike to the month-end of the final-hike month, and 12 months forward from that point. Path chart uses quarter-end closes indexed to 100.
- Drawdowns are approximate maximum peak-to-trough declines in daily closes inside each cycle window, rounded.
- SOX figures use the same month-end convention, rounded to the nearest 5 percentage points; the index launched in December 1993, so earlier cycles are not available.
- Sources: Federal Reserve Board, S&P Dow Jones Indices, Nasdaq. Compiled July 2026. This article is for information only and is not investment advice.
Related Reading
- Every Fed Rate-Cut Cycle Since 1980: Stocks, Bonds & Gold
- Warsh's First Fed Meeting 2026: Dot Plot Flips to Hike
- June 2026 FOMC Decision: Dot Plot, AI Stocks & Bitcoin
- The 20 Worst Days in S&P 500 History — and What Came Next
- Government Shutdowns and the Stock Market, 1976–2026
- The Magnificent 7 in 2026: Weights & Concentration Risk
