Why Rate Hikes Might Not Crash the Market in 2026

The Fed’s latest rate hike—its first since 2023—has renewed worries that higher borrowing costs could pressure equities. But this time, markets have not shown the same kind of breakdown that followed the Fed’s earlier tightening cycle. The S&P 500 fell more than 19% during the previous year’s initial rate increases, when inflation-fighting moves quickly hit growth expectations. With the Fed funds range now cited around 3.75% to 4.00% and still below levels above 5% three years ago, the argument is that investor confidence, not panic, could dominate. Still, valuations remain a risk, and overvalued stocks could face sharp corrections.