There Is Now An 83% to 90% Chance the Fed Raises Interest Rates on Sept. 16. Here's What History Says Would Happen to the S&P 500 Index Next.

Markets assign more than a 90% probability to a 25bp Federal Reserve rate hike at the Sept. 16 meeting following hotter-than-expected inflation data, while Kalshi implies an 83% chance that the fed-funds rate will exceed 3.75% afterward. Bond yields have reached multi-decade highs, and historical evidence cited by Goldman Sachs shows the S&P 500 averages a 2% decline in the three months after the start of hiking cycles; Schwab data show average six-month and one-year drawdowns of 12.2% and 14.0%, respectively. The article cautions that a near-term equity sell-off is possible, particularly if tightening accelerates, although earnings growth remains the key determinant of medium-term stock performance.

Analysis

The market risk is not the widely anticipated policy action but a repricing of the terminal-rate path and real yields. A 25 bp move that is already reflected in front-end futures should produce limited index-level follow-through unless the statement, projections, or press conference shifts the expected easing path; that would pressure long-duration equities disproportionately. The vulnerable cohort is unprofitable software, private-equity-dependent small caps, and high-multiple semiconductors rather than broad-market earnings compounders.

CME is a cleaner volatility beneficiary than a directional rates trade: persistent uncertainty around inflation and policy dispersion raises interest-rate and Treasury futures/options volumes, while incremental volume has high operating leverage. SCHW faces a more nuanced outcome: a higher-for-longer path supports asset yields, but only if deposit migration stabilizes; continued money-market outflows or higher funding costs can prevent net interest income from recovering. GS is less exposed to deposit beta but could face a delayed hit through weaker M&A, IPO, and financing issuance if financial conditions tighten materially.

Over the next 1-3 months, the key catalyst is whether forward earnings estimates hold while real yields remain elevated. If estimates are stable, a modest broad-index correction is likely a multiple reset and a buying opportunity; if analysts begin cutting 2027 estimates, the correction broadens into a cyclicals/credit event. The contrarian case is that consensus is treating every inflation surprise as restrictive: falling energy-risk premia or softer labor data could rapidly steepen expectations toward easing, creating a sharp short-covering rally in rate-sensitive growth.

The thesis is falsified by a meaningful decline in 10-year real yields without earnings deterioration, or by a clear improvement in Schwab's sweep/deposit trends. Conversely, a widening in high-yield spreads above roughly 450 bp would signal that the issue has migrated from valuation to credit risk and warrants broader de-risking.

Key Decisions for Investors

• Buy CME on post-meeting weakness; target a 3-6 month hold. The setup is attractive if rate-volatility volumes remain elevated, with downside limited by recurring transaction revenues. Exit if implied rates volatility and average daily contract volumes both normalize materially for two consecutive months.
• Pair trade for 1-3 months: long CME / short SCHW. This isolates policy uncertainty monetization versus deposit-beta and funding-cost risk; reassess if SCHW reports improving core deposits and net interest income guidance.
• Reduce exposure to long-duration growth through a hedge in ARKK or IGV rather than shorting NVDA outright. Use a 5-8% index hedge sized against portfolio beta; cover if 10-year real yields fall by 30-40 bp or earnings revisions reaccelerate.
• Maintain GS only as a tactical trading/markets exposure, not a financing-cycle long. Add after evidence that issuance pipelines are holding; otherwise, a 3-6 month underweight is warranted if high-yield spreads widen toward 450 bp.
• Do not initiate a broad S&P 500 short solely around the meeting. The decision is largely priced; wait for a repricing in the projected policy path or a negative earnings-revision breadth signal before adding index downside.