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

Following the Federal Reserve’s first interest-rate hike in a new tightening cycle, U.S. equities have historically faced headwinds. However, according to a recent analysis from Citi, investors looking at global markets may find a different pattern. The data indicates that Japanese and U.K. equities tend to outperform in this specific environment, with relative returns averaging between 2% and 3% in the months following the initial move.

This divergence highlights how monetary policy in the U.S. does not uniformly impact global risk assets. For Japanese and U.K. markets, the catalyst often lies in a weaker local currency versus the dollar, which can boost export competitiveness and translate into stronger corporate earnings. Meanwhile, the direct drag of higher U.S. rates tends to weigh more heavily on domestic valuations.

For market observers, the key takeaway is the importance of regional fundamentals over a blanket approach to Fed policy. Rather than predicting a universal downturn, the focus should be on currency dynamics and sector composition. Watching the relative strength of the dollar and subsequent earnings revisions in these regions will be crucial to determining whether this historical pattern holds in the current cycle.