Federal Reserve interest rate hikes usually pound stocks, but then something surprising happens

Brace for minor market tremors if the Fed hikes interest rates, as many on Wall Street think will happen later today.

But if history holds up, any losses could prove short-lived. The S&P 500 ( ^GSPC ) has declined by an average of 4.0% over the six weeks following the first Fed rate hike of a cycle across seven such episodes since 1988, per new analysis from strategists at The Kobeissi Letter. Stocks recovered all of those losses over the next five to six weeks on average. In the six months following the first interest rate hike, the S&P 500 returned 4% on average. After 12 months, the S&P 500's average gain tallied 9%. Positive returns have occurred in every episode except 2022 over the 12 months. "Fed rate hikes have historically been great buying opportunities," the strategists added.

Markets are widely expecting a 25 basis point interest rate hike at today's Federal Reserve policy meeting.

The decision comes as sticky inflation readings — from the CPI to PPI — and rising energy costs force central bankers back into tightening mode.

If delivered, this would mark the central bank's first interest rate increase since July 2023.

Investors are also focused on updated economic projections and the Fed's "dot plot" to gauge future moves on rates. A hawkish dot plot and commentary from Fed Chairman Kevin Warsh could further elevate borrowing costs and pressure stocks initially around the world.

"Our US economists are also expecting that the Fed will hike today, as growth remains solid, the labour market has rebounded, and PCE inflation has demonstrated limited evidence of falling back to target," Deutsche Bank strategist Jim Reid said. "Moreover, forward-looking indicators suggest the inflation overshoot is likely to persist for some time. Nevertheless, with a hike mostly priced in by markets, the key question for them is how Chair Warsh and the latest dot plot frame the tightening cycle."

Brian Sozzi is Yahoo Finance's Executive Editor, host of the ' Power Players With Brian Sozzi' podcast and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi , Instagram , and LinkedIn . Tips on stories? Email brian.sozzi@yahoofinance.com.