U.S. stocks usually stumble after Fed hikes, but these markets tend to climb, says Citi

Following the first Federal Reserve interest-rate hike in a new tightening cycle, U.S. equities have historically faced headwinds. However, according to strategists at Citi, investors looking at global markets may find a different pattern. Their analysis indicates that Japanese and U.K. equities have tended to climb in this specific environment, posting average relative returns of between 2% and 3% following such an initial move.

This divergence highlights how monetary policy in the world’s largest economy does not affect all markets uniformly. The relative outperformance in these regions often stems from distinct domestic drivers, such as local monetary policy stances or currency dynamics, which can insulate them from the direct impact of higher U.S. rates. For market participants, the key takeaway is the importance of geographic diversification when positioning for a Fed cycle.

What to watch now is whether this historical tendency holds in the current economic climate. The key variable will be the pace of subsequent hikes and whether the Fed’s actions trigger a broader risk-off sentiment that overrides regional specifics. As always, past performance is not a guarantee of future results, and these average figures mask significant volatility around the mean.