How might markets perform as the Federal Reserve hikes interest rates? Positive corporate earnings, above-trend growth and still accommodative financial conditions suggest risk assets can still perform well as the Fed raises interest rates, Jordan Jackson, Global Market Strategist at JP Morgan, reports.

A few key takeaways from past rate hiking cycles

“In every hiking cycle, the yield curve has been flattened, an environment where short rates are rising faster than long rates. This creates a challenging environment for traditional fixed income as rates increase across the curve.”

“Equities tend to perform well as the Fed is typically hiking in a positive economic backdrop.”

“Performance of the US dollar has been mixed. Given this, investors should not base their short-term view of the dollar solely on a tightening Fed.”

“We continue to believe the risk of a recession this year is minimal; however, a hawkish Fed does increase recession risks sometime in 2H23 or 2024. That said, positive corporate earnings, above-trend growth and still accommodative financial conditions suggest risk assets can still perform well as the Fed raises interest rates.”