The Fed Hikes. P/E Falls. Stocks Can Still Rise.
The Fed starts hiking.
Valuation multiples usually compress.
That part is pretty consistent.
Looking at the last 5 hiking cycles, P/E contracted every single time. 📉
But here’s the part that matters:
P/E compression alone didn’t necessarily mean stocks went down.
The median $S&P 500(.SPX)$ 12-month return after the first Fed hike was still +6.8%.
So what actually determines what happens next?
Earnings. 👇
If earnings keep growing fast enough to offset multiple compression, the market can still move higher.
If earnings weaken at the same time valuations are contracting, that’s when the setup becomes much tougher.
That’s the piece I’d be watching across:
$S&P 500(.SPX)$
$Invesco QQQ(QQQ)$
$iShares Russell 2000 ETF(IWM)$
The Fed can compress the multiple.
Earnings decide whether the market can absorb it. 📊
Markets are always moving - and sometimes, the best move is knowing what works for you.
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