One Minute with Mario – Market Commentary

On September 16th at 2:00 p.m. ET, the Federal Open Market Committee (FOMC) announced a 25-basis-point increase in the federal funds target range, bringing it to 3.75%–4.00%. This marked the first rate hike since 2023. Inflation remains elevated, with higher energy prices adding to price pressures. Markets are already anticipating the possibility of another rate increase before year-end.

A lot of people hear “rate hike” and immediately assume equities will turn bearish. But history tells us the story is rarely that simple.

Here’s what I’ve learned watching these cycles play out over my career: the market’s initial reaction and its longer-term direction can be very different. In many tightening cycles, stocks experience short-term volatility, but longer-term performance depends more on economic growth, corporate earnings, and the path of interest rates. The initial reaction can be driven by uncertainty, while the longer-term trend is often driven by fundamentals.

As Cousin Mario always says: “Focus on the trendline (fundamentals), not the headline (rates/inflation)!”

On the day of the rate hike, the market’s reaction was relatively measured, although stocks ultimately finished slightly lower. The S&P 500 declined 0.44%, while the Nasdaq was essentially flat, falling just 0.01%. Because the rate increase was widely anticipated, much of the move had already been reflected in market expectations. The bigger question was not simply whether the Fed would raise rates, but what its decision means for the path ahead.

That brings us to the real question: Is this the beginning of a short, controlled cycle, or a longer fight against inflation?

History shows that rate-hike cycles do not all end the same way. In 1997, the Federal Reserve raised rates while the broader economy and technology sector continued to expand. By contrast, the aggressive tightening cycle of 2022 coincided with a significant equity-market drawdown as rapidly rising rates put pressure on valuations.

The difference isn't simply the size of the rate increase, what matters is what happens afterward.

I don’t believe a rate hike by itself is a reason for investors to panic. Instead, I would encourage investors to know what they own. Companies with strong balance sheets, durable earnings, and pricing power have historically been better positioned to navigate higher-rate environments, while highly leveraged or unprofitable companies can be more sensitive to rising borrowing costs. 

The bottom line? Rate hikes are a speed bump, not a roadblock. The fundamentals will decide how smooth the road ahead will be! 

We are still early in understanding how this cycle will play out. Investors who remain focused on fundamentals and understand what they own are better equipped to navigate uncertainty.

Love and Grace,

Cousin Mario! 🙂