Stock markets could rise despite a Federal Reserve rate hike this week. Investors are pricing in a 90% likelihood that the federal funds rate will rise to 3.75% to 4.00% on Wednesday, with two additional hikes also expected in October and December. This would be unusual as stocks typically fall when rates increase, but traders are currently prioritizing the bond market amid persistent inflation. The 10-year Treasury yield hit 5% for the first time since 2007, which also weighed on equities. Historically, the S&P 500 drops an average of 3.4% in the month following an initial rate hike over the past six tightening cycles.
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