As the Federal Reserve prepares what may be its final rate hike in a long cycle of tightening, markets are beginning to sense the turning of a tide. Historical patterns, stretching back nearly three decades, suggest that the pause between a central bank's last hike and its first cut has reliably rewarded patient investors with broad, sustained gains. CFRA's research frames this moment not as an ending, but as a threshold — one that, if crossed as expected in early 2023, could open a nine-month window of opportunity across nearly every sector of the market. The deeper question is whether invest
Stocks Poised for 'Pause and Pop' Rally as Fed Signals End to Rate Hikes
Nearly every corner of the market participates in the rally.
Mark
So CFRA is saying the Fed will stop hiking rates on February 1. How confident are they in that call?
Mimi
They're calling it the likely endpoint of the cycle, but it's a forecast, not a certainty. The Fed could always surprise. What matters is that if they're right, history suggests a very specific pattern follows.
Luke
Right—and that pattern is based on data going back to 1995. That's a decent sample, but it's also only 28 years. How many actual pause-to-cut cycles are we really talking about here?
Mimi
Fair point. The nine-month window is an average, so individual cycles vary. But the consistency is what's striking—99% of sub-industries gain during these periods.
Mark
Why do financials and homebuilders do so well? Is there something structural about those sectors?
Mimi
Financials benefit from the expectation of lower rates, which can improve lending margins and reduce credit stress. Homebuilders are sensitive to mortgage rates, so the prospect of cuts ahead can unlock demand that's been frozen by higher borrowing costs.
Luke
But that's forward-looking. The actual rate cuts haven't happened yet. So investors are betting on a future that hasn't arrived. What if the Fed pauses but then doesn't cut for longer than expected?
Mimi
Then the rally could stall. That's the risk embedded in this trade. You're buying on the assumption of what comes next, not on what's actually happening.
Mark
The article mentions the S&P 500 is already up 5% since the start of 2023. Is that rally already pricing in the pause?
Luke
Almost certainly. So the question becomes: is there more room to run, or have we already captured the easy gains? The historical pattern says yes, there's more. But that assumes the Fed actually does pause and eventually cut.
Mimi
And that's why Stovall's closing line matters—will investors sell on the news or keep pushing higher? The answer depends on whether they believe the Fed's next move is truly the last hike.
Le Pouls
- After eight consecutive rate hikes, the Federal Reserve is expected on February 1 to deliver its last increase — a decision that could mark the end of one of the most aggressive tightening cycles in recent memory.
- Markets are already moving in anticipation, with the S&P 500 and S&P 1500 each climbing nearly 5% since January, suggesting investors are pricing in the pause before it is officially declared.
- CFRA's historical data reveals a striking pattern: 99% of S&P 1500 sub-industries have posted gains during the nine-month window between a Fed pause and the first rate cut, with homebuilders surging an average of 36.6%.
- The critical tension now is whether the formal pause announcement will trigger a 'sell the news' retreat or confirm the rally — a question history leans toward answering optimistically, though never with certainty.
- Gold stands as the lone historical outlier, declining an average of 7.1% during these periods, a reminder that even the broadest tides leave some assets stranded.
As the Federal Reserve prepares what may be its final rate hike in a long cycle of tightening, markets are beginning to sense the turning of a tide. Historical patterns, stretching back nearly three decades, suggest that the pause between a central bank's last hike and its first cut has reliably rewarded patient investors with broad, sustained gains. CFRA's research frames this moment not as an ending, but as a threshold — one that, if crossed as expected in early 2023, could open a nine-month window of opportunity across nearly every sector of the market. The deeper question is whether investors will trust the pattern, or whether the very anticipation of relief will consume the rally before it fully arrives.
Wall Street is positioning itself around a single anticipated moment: the Federal Reserve pausing its rate-hiking cycle. CFRA, an independent research firm, expects the central bank's February 1 hike to be its last, bringing eight consecutive increases to a close and setting the federal funds rate in a range of 4.5% to 4.75%. What follows that pause, according to CFRA's chief investment strategist Sam Stovall, is historically one of the most rewarding stretches for equity investors.
Stovall points to a pattern dating back to 1995: the Fed typically waits roughly nine months after its final hike before beginning to cut rates. During that interval, markets have historically surged with remarkable breadth. CFRA's data shows 99% of S&P 1500 sub-industries posting gains in these windows, with financials rising an average of 22.5%, real estate climbing 20.1%, and homebuilders — led by names like Lennar — outperforming all others at an average gain of 36.6%. Materials and energy participate more modestly, while gold has historically declined, averaging a 7.1% loss.
The breadth of these rallies points to something beyond sector rotation. When borrowing costs stop rising, a kind of psychological permission spreads through markets — uncertainty lifts, and investors across the board begin bidding up equities in anticipation of easier financial conditions. The S&P 500's nearly 5% gain since the start of 2023 suggests that process may already be underway.
Stovall is careful not to treat history as prophecy. The open question — whether investors will sell on the news of a formal pause or continue pushing prices higher — will begin to answer itself within days. If the past holds, the market climbs. But the pattern is only as reliable as the moment allows it to be.
Wall Street is betting on a peculiar kind of relief rally—one that hinges on the Federal Reserve finally stopping what it started. According to CFRA, an independent research firm, the central bank is likely to deliver its last rate increase on February 1, 2023, bringing eight consecutive hikes to a close. That single decision, if it holds, could unlock what the firm calls a "pause and pop" effect: a stretch of broad market gains that historically unfolds in the nine months between when the Fed stops raising rates and when it begins cutting them again.
The mechanics are straightforward enough. The Fed has been hiking aggressively since last year, starting from near zero. By February, if CFRA's read is correct, the federal funds rate will sit in a range of 4.5% to 4.75%. Then comes the waiting. Sam Stovall, CFRA's chief investment strategist, points to historical patterns stretching back to 1995: the Fed typically waits about nine months after its final hike before it starts lowering rates. If that rhythm holds this time, rate cuts could arrive by late 2023 or early 2024. The market, it seems, is already pricing in this possibility—the S&P 500 has climbed nearly 5% since the start of 2023, and the broader S&P 1500 has matched that gain through January.
What makes this period historically significant is how thoroughly it lifts the market. CFRA's data shows that 99% of the sub-industries tracked within the S&P 1500 have posted gains during these nine-month windows. The winners are not evenly distributed. Financials have risen an average of 22.5%, while real estate—which includes homebuilders—has climbed 20.1%. Homebuilders themselves have been the strongest performers, with an average gain of 36.6%. Materials and energy have also moved higher, though more modestly, at 9.3% and 8.3% respectively. Lennar, a major homebuilder, exemplifies the group's historical outperformance. Gold stands as the notable exception, having declined 7.1% on average during these periods.
The pattern is striking because it is so broad. Nearly every corner of the market participates in the rally, even if some sectors lead. This suggests that the psychological shift—from an era of rising borrowing costs to one of falling ones—creates a kind of permission structure for investors to bid up equities across the board. The uncertainty that has weighed on markets begins to lift, replaced by the prospect of easier financial conditions ahead.
But Stovall himself acknowledges the open question: when the Fed actually pauses, will investors sell on the news or push prices higher? History, he notes, is never gospel. Yet the pattern is clear enough that it warrants attention. If the past is any guide, the market will likely continue climbing rather than retreat. The test will come soon—in just days, when the Fed meets and, if CFRA is right, signals the end of its rate-hiking cycle. What happens next will tell us whether investors are truly convinced that relief is on the way.
Citations marquantes
If history is any guide, for it is never gospel, prices will likely head higher.— Sam Stovall, CFRA chief investment strategist
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