When the Fed Stops Tightening

On Tuesday, the Fed rested, holding rates steady after 17 consecutive hikes. The next day, an interesting discussion took place on RealMoney.com's Columnist Conversation after Norm Conley asked, "What can we expect from markets after the Fed stops raising?"

Conley cited a June 6 report by Calyon Securities, "Market Performance & Fed Tightening Cycle," which found "stocks performed quite well" in the six months that followed the end of tightening cycles over the past 25 years (the current cycle is the fifth). The prior cycles ended in August 1984, February 1989, February 1995 and May 2000, which was the exception to the upbeat rule.

Conley recently performed a similar analysis using various Russell indices and found that "on average, the Russell 1000 increased by 16.2% in the 12 months following the final tightening. The index increased an average of 37.9% in the 24 months following the last tightening. ... These average returns are inclusive of the thumping stocks took in the 12 and 24 months following May 2000."

In the past, I've looked at similar studies -- including some that have gone back to 1962, 1953 and 1929 -- and it turns out that the 1982-2000 period is somewhat unusual.