How Do Fed Rate Cuts Affect Stocks?
Rate cuts are not automatically good for stocks. What matters is why the Federal Reserve is cutting. Here is what happened after past first cuts, with and without a recession, and how cuts reach share prices.
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What Happens to Stocks When the Fed Pauses Rate Hikes?
Every first hold after the Federal Reserve’s last rate hike since 1994: what the S&P 500 did 1, 3, 6 and 12 months later, how far it fell along the way, and how long the Fed waited before cutting. Plus where the October 2026 hold fits.
Key takeaways
- In the six Fed hiking cycles since 1994, the S&P 500 rose a median 25.6% in the 12 months after the first hold that followed the last hike. Five of six were positive; after the June 2000 pause it fell 15.7%.
- Even in the good cases the path was bumpy: the median worst drop inside those 12 months was 8.1%, and 27.5% after the 2000 pause.
- Every one of the six pauses ended in a cut, not another hike, a median 10.7 months after the last hike (range 5 to 18 months).
- A pause is only clear in hindsight. In 1994 the Fed held three times and hiked again each time; in June 2023 it held, then hiked in July.
- On Oct 28, 2026 the Fed held at 3.75–4.00% after its Sep 16 hike, by a 10–2 vote. The S&P 500 closed 2.5% higher at the Oct 28 hold than at the Sep 16 hike.
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In this article
- What happens to the stock market when the Fed stops raising rates?
- S&P 500 after every first Fed hold since 1994
- How wide was the spread between cycles?
- Why did stocks fall after the 2000 pause but rise after the others?
- How long after the last hike did the Fed start cutting?
- How do you know the Fed has really stopped?
- Where does the October 2026 hold fit?
- Method and limits
What happens to the stock market when the Fed stops raising rates?
Usually it went up, but six cycles is a small sample and one of them went badly. Measured from the close on the day of the first hold after the last hike, the S&P 500 index rose a median 25.6% over the next 12 months, in Exent’s price data from 1994 to Oct 28, 2026. Five of the six cycles were positive. The exception was 2000: the Fed paused in June, the dot‑com bust deepened, and the index was 15.7% lower a year later.
For comparison, the median 12‑month price return across all trading days from 1994 to October 2025 was 12.8%, and 79% of those 12‑month windows were positive. So past pauses did better than an average day, but with six data points the gap tells you about history, not about the next year.
S&P 500 after every first Fed hold since 1994
Each row is one tightening cycle. “Last hike” is the final increase of that cycle and the level it reached; “first hold” is the next scheduled meeting, when the Fed left rates unchanged. Returns run from the close on the day of the first hold. Dates are from the Fed’s table of rate changes and its historical meeting pages.
| Cycle | Last hike (rate) | First hold | 1 month | 3 months | 6 months | 12 months | Worst drop in 12 months | First cut (months after last hike) |
|---|---|---|---|---|---|---|---|---|
| 1994–95 | Feb 1, 1995 (6.00%) | Mar 28, 1995 | +2.1% | +8.1% | +16.3% | +28.8% | −4.2% | Jul 6, 1995 (5.1) |
| 1997 | Mar 25, 1997 (5.50%) | May 20, 1997 | +6.8% | +11.6% | +13.9% | +33.0% | −10.8% | Sep 29, 1998 (18.2) |
| 1999–2000 | May 16, 2000 (6.50%) | Jun 28, 2000 | −2.4% | +0.2% | −8.3% | −15.7% | −27.5% | Jan 3, 2001 (7.6) |
| 2004–06 | Jun 29, 2006 (5.25%) | Aug 8, 2006 | +2.2% | +9.0% | +13.9% | +17.8% | −7.7% | Sep 18, 2007 (14.7) |
| 2015–18 | Dec 19, 2018 (2.25–2.50%) | Jan 30, 2019 | +3.9% | +9.9% | +12.4% | +22.5% | −6.8% | Jul 31, 2019 (7.4) |
| 2022–23 | Jul 26, 2023 (5.25–5.50%) | Sep 20, 2023 | −4.0% | +6.7% | +18.7% | +29.5% | −8.5% | Sep 18, 2024 (13.8) |
| Median of 6 | +2.2% | +8.6% | +13.9% | +25.6% | −8.1% | 10.7 months | ||
| 2026 (in progress) | Sep 16, 2026 (3.75–4.00%) | Oct 28, 2026 | Pending | Pending | Pending | Pending | Pending | No cut yet |
- 1994–95
- Last hike (rate)
- Feb 1, 1995 (6.00%)
- First hold
- Mar 28, 1995
- 1 month
- +2.1%
- 3 months
- +8.1%
- 6 months
- +16.3%
- 12 months
- +28.8%
- Worst drop in 12 months
- −4.2%
- First cut (months after last hike)
- Jul 6, 1995 (5.1)
- 1997
- Last hike (rate)
- Mar 25, 1997 (5.50%)
- First hold
- May 20, 1997
- 1 month
- +6.8%
- 3 months
- +11.6%
- 6 months
- +13.9%
- 12 months
- +33.0%
- Worst drop in 12 months
- −10.8%
- First cut (months after last hike)
- Sep 29, 1998 (18.2)
- 1999–2000
- Last hike (rate)
- May 16, 2000 (6.50%)
- First hold
- Jun 28, 2000
- 1 month
- −2.4%
- 3 months
- +0.2%
- 6 months
- −8.3%
- 12 months
- −15.7%
- Worst drop in 12 months
- −27.5%
- First cut (months after last hike)
- Jan 3, 2001 (7.6)
- 2004–06
- Last hike (rate)
- Jun 29, 2006 (5.25%)
- First hold
- Aug 8, 2006
- 1 month
- +2.2%
- 3 months
- +9.0%
- 6 months
- +13.9%
- 12 months
- +17.8%
- Worst drop in 12 months
- −7.7%
- First cut (months after last hike)
- Sep 18, 2007 (14.7)
- 2015–18
- Last hike (rate)
- Dec 19, 2018 (2.25–2.50%)
- First hold
- Jan 30, 2019
- 1 month
- +3.9%
- 3 months
- +9.9%
- 6 months
- +12.4%
- 12 months
- +22.5%
- Worst drop in 12 months
- −6.8%
- First cut (months after last hike)
- Jul 31, 2019 (7.4)
- 2022–23
- Last hike (rate)
- Jul 26, 2023 (5.25–5.50%)
- First hold
- Sep 20, 2023
- 1 month
- −4.0%
- 3 months
- +6.7%
- 6 months
- +18.7%
- 12 months
- +29.5%
- Worst drop in 12 months
- −8.5%
- First cut (months after last hike)
- Sep 18, 2024 (13.8)
- Median of 6
- Last hike (rate)
- First hold
- 1 month
- +2.2%
- 3 months
- +8.6%
- 6 months
- +13.9%
- 12 months
- +25.6%
- Worst drop in 12 months
- −8.1%
- First cut (months after last hike)
- 10.7 months
- 2026 (in progress)
- Last hike (rate)
- Sep 16, 2026 (3.75–4.00%)
- First hold
- Oct 28, 2026
- 1 month
- Pending
- 3 months
- Pending
- 6 months
- Pending
- 12 months
- Pending
- Worst drop in 12 months
- Pending
- First cut (months after last hike)
- No cut yet
S&P 500 index price return, dividends not included. “Worst drop” is the largest fall from a high to a later low within the 12 months after the first hold (see maximum drawdown). The 2026 cells fill in as each horizon passes.
How wide was the spread between cycles?
Very wide. The 12‑month results ran from −15.7% to +33.0%, a gap of almost 49 percentage points across just six cases. The median hides that. The mean, 19.3%, is pulled down by the single bad year.
| After the first hold | Median | Lowest | Highest | Positive |
|---|---|---|---|---|
| 1 month | +2.2% | −4.0% (2023) | +6.8% (1997) | 4 of 6 |
| 3 months | +8.6% | +0.2% (2000) | +11.6% (1997) | 6 of 6 |
| 6 months | +13.9% | −8.3% (2000) | +18.7% (2023) | 5 of 6 |
| 12 months | +25.6% | −15.7% (2000) | +33.0% (1997) | 5 of 6 |
| Worst drop in 12 months | −8.1% | −27.5% (2000) | −4.2% (1995) | Every cycle had one |
- 1 month
- Median
- +2.2%
- Lowest
- −4.0% (2023)
- Highest
- +6.8% (1997)
- Positive
- 4 of 6
- 3 months
- Median
- +8.6%
- Lowest
- +0.2% (2000)
- Highest
- +11.6% (1997)
- Positive
- 6 of 6
- 6 months
- Median
- +13.9%
- Lowest
- −8.3% (2000)
- Highest
- +18.7% (2023)
- Positive
- 5 of 6
- 12 months
- Median
- +25.6%
- Lowest
- −15.7% (2000)
- Highest
- +33.0% (1997)
- Positive
- 5 of 6
- Worst drop in 12 months
- Median
- −8.1%
- Lowest
- −27.5% (2000)
- Highest
- −4.2% (1995)
- Positive
- Every cycle had one
In the drop row, Lowest is the deepest drop and Highest the mildest. Dropping the one‑hike 1997 cycle changes little: the 12‑month median of the other five is 22.5%. Measuring from the day of the last hike instead of the first hold gives a similar picture, a median of 23.7% over 12 months, with the same 2000 exception (−12.3%).
Why did stocks fall after the 2000 pause but rise after the others?
The economy, not the pause. In 2000 the Fed stopped hiking as a technology bubble was already deflating, and a recession began in March 2001 according to the National Bureau of Economic Research. Earnings fell, and the cuts that started in January 2001 did not stop the slide. In 1995, 1997, 2019 and 2023 the economy kept growing and profits held up.
2006 sits in between. Stocks rose 17.8% in the year after the August 2006 pause, but the housing downturn was building and a recession began in December 2007, about three months after the first cut. The 12‑month window ended before the damage showed. The same split, soft landing or recession, drives what happens after the first cut; see how Fed rate cuts affect stocks and how stocks perform in a recession.
How long after the last hike did the Fed start cutting?
A median of 10.7 months, and the range was wide: 5.1 months in 1995, 18.2 months after the 1997 hike. In all six cycles the next move after the pause was a cut, not another hike. Counting from the first hold instead, the wait ran from 3.3 months (1995) to 16.3 months (1997).
The pause itself was not a short window. After the July 2023 hike, rates stayed at 5.25–5.50% for almost 14 months before the September 2024 cut. After June 2006 they held at 5.25% for nearly 15 months. More on how the committee decides: how the Fed sets interest rates.
How do you know the Fed has really stopped?
You don’t, at the time. The table only exists in hindsight: each “first hold” is labelled after the fact, once no further hike came. Holds in the middle of a cycle are common, and they look the same on the day.
- 1994: the Fed held at its July, September and December meetings and raised rates again after each one, up to the final hike on Feb 1, 1995.
- 2023: the Fed held on June 14, then raised rates again on July 26. Only the September 2023 hold turned out to be the pause.
- 2015–18: the Fed held at many meetings between nine quarter-point hikes, so a single hold said little about the end of the cycle.
- Oct 28, 2026: two of the twelve voting members preferred another quarter-point hike, which the Fed’s statement records as dissents.
That is why the 2026 row is marked “in progress”. If the Fed raises rates again, the October hold becomes a mid‑cycle hold and drops out of this table. What usually happens on the day of a decision is covered in what the stock market does on Fed days.
Where does the October 2026 hold fit?
It is the first hold after a single hike. On Sep 16, 2026 the Fed raised its target range by a quarter point to 3.75–4.00% by a 12–0 vote (Fed statement), its first increase since July 2023 and a reversal after cuts from September 2024 to December 2025. On Oct 28 it kept the range unchanged by a 10–2 vote, with two members preferring another increase (Fed statement, Oct 28, 2026).
Between the two decisions the S&P 500 closed up 2.5%, from 7,551.81 to 7,743.98. In the past cycles, the move from last hike to first hold ranged from −3.6% to +7.1%, with a median of +3.3%. The only earlier one‑hike cycle in the table is 1997, which is one case and not a template. Background on the meeting: the October 2026 Fed meeting; how a portfolio is exposed to further hikes: what happens to a portfolio when the Fed raises rates.
Method and limits
- Sample: the six tightening cycles that ended between 1995 and 2023. Before February 1994 the Fed did not announce its target, so earlier last-hike dates are not exact and are left out.
- Dates: announcement days. The Fed’s table lists effective dates, one day later, from 2008 on (for example Dec 20, 2018 for the Dec 19 decision).
- Prices: S&P 500 index daily closes, price return without dividends, from Exent’s price data through Oct 28, 2026. Each horizon ends at the last close on or before the same calendar day N months later.
- Worst drop: the deepest fall from a running high to a later close inside the 12 months after the first hold.
- Six cases cannot support a forecast. Results depended on whether a recession followed, which nobody knew at the time.
- This page is updated after each Fed decision. It is general education, not personal advice.
Follow the Fed backdrop with Exent
History labels a hold as a pause only after the fact. The calendar, the data and the market reaction in between are what members follow.
- Exent Market intel keeps an events calendar with every Fed meeting, minutes release and major data date.
- A daily market briefing explains what moved and why, with cited sources.
- Members see how Exent reads the macro backdrop day to day, alongside cross‑asset signals for stocks, bonds, the dollar and commodities.
Frequently asked questions
In five of the six hiking cycles since 1994, the S&P 500 was higher 12 months after the first hold that followed the last hike, with a median gain of 25.6%. After the June 2000 pause it fell 15.7%, as a recession followed.
Across the six cycles since 1994, the first cut came a median 10.7 months after the last hike, ranging from about 5 months in 1995 to about 18 months after the 1997 hike. Every one of those pauses ended in a cut.
No one knows yet. The Fed raised its range to 3.75–4.00% on Sep 16, 2026 and held it on Oct 28 by a 10–2 vote, with two members preferring another hike. A hold is only confirmed as the end of a cycle after the fact.
A pause turns out to be the end of the hikes; a skip is a hold followed by another increase. In June 2023 the Fed held and then hiked again in July, so June was a skip and September 2023 was the pause.
The median worst drop within 12 months of the first hold was 8.1% across the six cycles since 1994. The deepest was 27.5% after the 2000 pause; the mildest was 4.2% after the 1995 pause.
The Fed stopped hiking as the dot-com bubble was deflating, and a recession began in March 2001. Falling earnings outweighed the pause and the cuts that started in January 2001.
Sources
- Open market operations: target federal funds rate changes, 2003–present — Federal Reserve Board, Sep 16, 2026
- Open market operations archive: target federal funds rate changes, 1990–2002 — Federal Reserve Board
- FOMC historical materials by year — Federal Reserve Board
- Meeting calendars and information — Federal Reserve Board
- Federal Reserve issues FOMC statement (Sep 16, 2026) — Federal Reserve Board, Sep 16, 2026
- Federal Reserve issues FOMC statement (Oct 28, 2026) — Federal Reserve Board, Oct 28, 2026
- US business cycle expansions and contractions — National Bureau of Economic Research
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