Why the end of Fed rate hikes may not boost markets this time around. Plus, three TSX stocks worth pondering

The end of the Federal Reserve’s rate-hiking cycle has generally been a good time to own stocks, but an uncertain economic outlook and stretched valuations could dampen upside this time around.

Investors with a more bearish view, however, say it is only a matter of time before higher rates tighten economic conditions and bring a downturn. The S&P 500 is already up over 16 per cent this year, aided in part by a U.S. economy that has stayed resilient in the face of higher interest rates. Though most investors believe a recession is unlikely in 2023, a slowdown next year remains a possibility for some market participants. One worrying recession signal has been the inverted Treasury yield curve, a market phenomenon that has preceded past downturns.

“If Wall Street comes to the conclusion that the Fed has ended its rate-tightening program, that would at least offer support if not give [stocks] an additional catalyst to keep working higher,” said Sam Stovall, CFRA’s chief investment strategist.

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