Hikes and catalysts

Rate hikes alone rarely break a market. Rate hikes plus a shock to a stretched market often do. In the aftermath of NVDA’s CEO exit, and considering how influential he has been for the development of the AI industry, and the next FOMC meeting, where the Fed is expected to hike, it’s interesting to look back in history to see the dynamic.

A few examples:

📉 1973-74: Tightening plus the OPEC oil embargo and Watergate. S&P 500: about -48%.

📉 1987: Rising yields plus portfolio insurance and currency tensions led to Black Monday, with -20% in a single day.

📉 2000: The Fed lifted rates from 4.75% to 6.5%, then the Microsoft antitrust ruling hit sentiment on peak valuations. Nasdaq: about -78%.

📉 2022: The fastest hiking cycle in 40 years plus Russia's invasion of Ukraine. S&P 500: about -25%.

The near-misses matter too. In 1994 the bond market was crushed, yet stocks fell only about 9%.

In 2018 the S&P 500 stopped just short of -20%.

The pattern: hikes shrink the margin of safety, a catalyst lights the match, and valuations and concentration are the fuel.

Today the Fed hiked in September, a quarter-point December hike is fully priced in, and Nvidia has lost almost 10%, roughly $430 billion in market cap, in a week amid probes into Jensen Huang's relationship with an alleged Chinese spy.

That's not a bear market. But when the market's largest stock takes a shock while the Fed is still tightening, history says to pay attention.

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