Looking at the track record of 2022, even knowing the outcome of the Fed meeting, predicting tomorrow’s move on Dalal Street is not as easy as it sounds.
On July 28, a day after the last Federal Open Market Committee (FOMC) meeting, when Powell raised the target rate 75 basis points to a range of 2.25 to 2.5 percent, Sensex was up over 1,000 points completed or 1.87 percent. Not only was it the biggest rise since 1994, but the Fed had continued its policy of reducing its record balance sheet.
If Powell decides to hike 75 basis points tonight, the magnitude of the rate hike would be the same for the third consecutive month after making consecutive 75 basis point hikes at its May and June meetings.
After the June 14 meeting, Sensex was down over 1,045 points as panic gripped Dalal Street following the jumbo rate hike.
The 50 basis point hike on May 4th to fight inflation was not welcomed by either bulls or bears as the Sensex ended flat up just 33 points.
In March of this year, when the Fed approved its first rate hike in more than 3 years, Sensex finished up 1,047 points.
The Fed’s first meeting of the calendar year in January 2022, when Powell pointed to rate hikes at its next meeting, had left the Sensex down over 580 points.
On the other hand, Wall Street has rallied each of the four times the Fed has hiked rates this year. On March 16, May 4, June 15, and July 27, the S&P 500 gained 2.2 percent, 3 percent, 1.5 percent, and 2.6 percent, respectively, on the day of the Fed’s rate hike announcement.
“If the Fed raises interest rates by 75 basis points, we do not expect any significant negative impact on the Indian market. In fact, the Indian market rose by 75 basis points after each rate hike (as observed in June and July 2022). We expect a similar pattern to play out this time as well. The Fed rate hike could affect Indian market sentiment for at most a day and no longer,” said Sunil Damania, MarketsMojo’s chief investment officer.
After hotter-than-expected US inflation data fueled fears of an outrageous 100 basis point rate hike, only two out of 96 economists in a Bloomberg poll now forecast a full point move.
With the support of FIIs, Nifty is up over 13 percent this quarter.
(Disclaimer: Experts’ recommendations, suggestions, views and opinions are their own. These do not represent the views of Economic Times)
https://economictimes.indiatimes.com/markets/stocks/news/how-will-sensex-react-to-fed-rate-hike-heres-the-track-record/articleshow/94343617.cms Fed rate hike impact | Sensex: How will Sensex react to Fed rate hike? Here’s the track record