Is a September rate hike necessarily bad news? Analysis: US stocks saw limited declines after the initial hike, and returns a year later may be even better than usual.

Market concerns about a September rate hike by the Federal Reserve may have overestimated the actual impact of the rate hike on the US stock market.

According to MarketWatch analysis, historical data shows that the first rate hike after the Federal Reserve ends its rate-cutting cycle typically only causes short-term disturbances. The S&P 500 index usually experiences a period of weakness of about one month before and after the first rate hike, but then gradually stabilizes; on average, it records positive returns three months after the rate hike, and the average return after 12 months is even higher than the long-term level of the stock market.

The market is currently widely betting that the Federal Reserve will raise interest rates at its September 15-16 policy meeting, and this expectation has already been reflected to some extent in recent stock market movements. However, historically, what the market really needs to be wary of may not be the rate hike itself, but rather the economic signals behind it.

If the interest rate hike occurs in an environment where the economy remains resilient and corporate profits continue to grow, the valuation pressure from rising interest rates may not be enough to reverse the stock market trend. Therefore, even if the Federal Reserve raises interest rates as expected in September, it cannot be simply equated with the US stock market entering a sustained decline.

The direction of interest rates is not the key factor; the underlying economic signals are more important.

The reason why the first interest rate hike may not put sustained pressure on the stock market is related to the economic environment.

The Federal Reserve's resumption of interest rate hikes typically indicates that the economy still possesses a certain degree of resilience, or that the risks of inflation or overheating are rising. In other words, rate hikes often occur when the economy can still withstand higher interest rates. As long as economic growth and corporate profits do not deteriorate significantly in tandem, the increased financing costs and valuation pressures resulting from rate hikes may not be sufficient to reverse the stock market trend.

In contrast, the signals sent by the first interest rate cut are more complex. While rate cuts can lower financing costs and improve liquidity, they often indicate a significant slowdown in economic growth, or even the risk of recession. In this case, the valuation support provided by the rate cut may be offset by deteriorating corporate earnings expectations.

Historical data also shows that the S&P 500's average return after the first interest rate cut is lower than the corresponding level after the first interest rate hike. However, the difference is not statistically significant at the 95% confidence level, and therefore insufficient to constitute a clear basis for market timing.

Ultimately, the stock market's performance is not determined by the single variable of "interest rate hikes or cuts," but by the economic fundamentals behind interest rate changes. If interest rate hikes occur in an environment where the economy remains resilient, the market may not need to be overly pessimistic; conversely, if interest rate cuts are made to address a rapidly weakening economy, lower interest rates do not necessarily mean a positive for the stock market.

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