US equity markets tend to do very well when the Fed pauses its monetary policy tightening cycles – HSBC

As expected, the FOMC chose to skip a rate hike at the June meeting. Economists at HSBC analyze the implications for equities.

Current bull market should continue

The current bull market, which began last October, should continue. But investors should prepare for some consolidation as valuations have risen, and the potential of further Fed tightening may cut into future earnings estimates and valuations in the short term. However, we feel the Fed is closer to the end of its monetary policy tightening cycle, and this should bode well for US equities. 

Historically, when the Fed pauses its monetary policy tightening cycles, US equity markets tend to do very well and usually outperform global indices. In the prior six Fed tightening cycles, the S&P has produced an average return of 19% in the 12 months following a Fed pause.