Today, a friend asked me a very interesting question: since the Federal Reserve has already raised interest rates, why has the U.S. stock market still maintained an upward trend?
The most essential truth behind this is that financial markets had already fully priced in the expectation of rate hikes in advance, and reflected it in current stock prices. Capital markets have long been the most averse to the unknown. Once the decision to raise rates is officially implemented, it means that a major source of uncertainty has been removed, and investors’ sentiment can naturally be effectively restored.
Looking back at past trends, similar market reactions have, in fact, been playing out repeatedly throughout history. A very typical example is in 2023, when, despite the Fed’s aggressive rate-hike policy, the U.S. stock market not only failed to falter, but instead saw a very strong rebound. Over the entire 2023 fiscal year, the Nasdaq index surged by 53.8%.
The most essential truth behind this is that financial markets had already fully priced in the expectation of rate hikes in advance, and reflected it in current stock prices. Capital markets have long been the most averse to the unknown. Once the decision to raise rates is officially implemented, it means that a major source of uncertainty has been removed, and investors’ sentiment can naturally be effectively restored.
Looking back at past trends, similar market reactions have, in fact, been playing out repeatedly throughout history. A very typical example is in 2023, when, despite the Fed’s aggressive rate-hike policy, the U.S. stock market not only failed to falter, but instead saw a very strong rebound. Over the entire 2023 fiscal year, the Nasdaq index surged by 53.8%.