Why would stocks rise in price if the fed hikes interest rates?

Evidence(6)

1. 

   Federal Reserve review documented the bearish effect of unexpected tightening

   [3]

   2026

   The Federal Reserve’s 2026 review concluded that an unexpected positive monetary-policy surprise is generally associated with lower stock-market values, with nominal forward yields explaining much of the high-frequency response. The review also cautioned that announcements convey information about growth and the Fed’s reaction function, so the market response is not determined by the rate move alone.

   1

   The report uses the Federal Reserve’s 2026 review as the principal qualification to the bullish thesis. It indicates that an unexpected tightening surprise generally pressures stock values through forward-yield and risk-premium channels, while also noting that Fed announcements can contain positive information about growth and the policy reaction function.

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2. 

   Goldman Sachs reported an elevated S&P 500 forward valuation

   [6]

   28 May 2026

   Goldman Sachs reported the S&P 500 at approximately 21 times forward earnings, around the 88th percentile of the prior 40 years. In the report’s argument, this valuation context means that positive earnings growth can support stocks, but a negative rates surprise could produce greater multiple pressure.

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3. 

   Goldman Sachs linked strong earnings and investment to potential equity resilience

   [5]

   11 Sept 2026

   Goldman Sachs commentary cited strong second-quarter earnings growth of roughly 30%, described valuations as near the 10-year average, and said companies with strong balance sheets still needed to invest heavily in capital expenditure. The report uses this as the cash-flow explanation for why stocks can rise despite a higher policy rate.

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4. 

   The September Fed hike was largely priced in

   [4]

   16 Sept 2026

   Reuters reported that the September 25-basis-point hike was largely priced in. The report uses this event to distinguish the mechanical fact of a higher policy rate from the market surprise: stocks can rise when the realized policy path is less negative than investors had already anticipated.

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5. 

   The Federal Reserve raised rates while describing economic activity as solid

   [1]

   16 Sept 2026

   On September 16, 2026, the FOMC unanimously raised the federal-funds target range by 25 basis points to 3.75%–4.00%. The statement described economic activity as expanding at a solid pace, domestic spending as resilient, productivity growth as strong and capital investment as robust; it also said unemployment was little changed and inflation remained elevated. In the report’s framework, the positive economic information could offset some of the discount-rate effect.

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6. 

   Chase’s historical sample showed mixed stock-market reactions to Fed decisions

   [7]

   Date unavailable

   Chase’s analysis of scheduled FOMC decisions from December 1999 through July 2026 found an average S&P 500 decision-day gain of 0.23%, with a positive move 52.6% of the time. The average return over the following week was slightly negative at 0.01%. The report uses these results to show that the market reaction depends on expectations, earnings, yields and risk premia rather than on the rate decision alone.

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