A True Bull Market Isn't Necessarily Afraid of Rate Hikes

Whenever the market hears the words “rate hikes,” it immediately starts talking about a bear market.

But looking back through history reveals a very counterintuitive phenomenon:

Many major bull markets actually made it through rate-hike cycles.

In 1994, the Fed hiked rates rapidly.
The federal funds rate rose from 3% all the way to 6%.

The U.S. economy did not collapse.
Corporate earnings continued to grow.
The most explosive phase of the 1990s bull market followed.

The period from 2004 to 2006 was even more typical.

The Fed hiked rates 17 times in a row.
Rates rose from 1% all the way to 5.25%.

What about U.S. stocks?

They did not enter a bear market directly because of the rate hikes.

The S&P 500 continued rising, not actually peaking until October 2007.

Now look at the most recent cycle.

In 2022, the Fed began the fastest rate-hike cycle in decades.
Rates rose from near zero all the way to 5.25%–5.50%.

But after bottoming in October 2022, the S&P 500 instead reentered a bull market in a high-rate environment.

So what history truly tells us has never been:

Rate hikes = bear market.

Nor is it:

Rate hikes = bull market.

What truly determines bull and bear markets is:

Whether the economy and corporate earnings can withstand the interest rate.

Why do stocks sometimes continue rising during rate hikes?

Because rate hikes by the central bank may themselves indicate that:

The economy is still strong.
Demand is still strong.
Employment is still strong.
Companies are still making money.

The central bank only needs to hit the brakes because the economy is running too fast.

As long as the pace of corporate earnings growth can cover rising financing costs, stocks can fully continue rising while rates are being hiked.

The truly dangerous part is the next stage.

Rate hikes
↓
Financing becomes increasingly expensive
↓
Companies begin reducing investment
↓
Capital expenditure declines
↓
Earnings expectations are revised downward
↓
Credit spreads widen
↓
Unemployment rises
↓
Only then does it transmit to the stock market

2007 was the classic example.

What truly killed the bull market was not the rate hikes that began in 2004.

Because after the rate hikes, U.S. stocks rose for another three years.

The real problem emerged after high rates were ultimately transmitted into real estate, leverage, and credit markets.

So in the current environment, I would not immediately conclude that the bull market is over just because the market has started pricing in Fed rate hikes again.

What I am really watching now are three things:

Whether AI capital expenditure has begun to decline.

Whether corporate earnings have begun to be revised downward.

Whether problems have begun to emerge in credit markets.

Especially in this AI cycle.

As long as companies like Microsoft, Google, Amazon, and Meta are still spending heavily to build data centers.

NVDA orders have not fallen significantly.

MU and Hynix’s HBM has not weakened significantly.

SNDK’s enterprise SSD demand has not fallen.

And credit spreads have not suddenly widened.

Then high rates are, at most, putting pressure on valuations.

That still cannot prove that the bull market is dead.

This is also the aspect most worth thinking about from the opposite perspective right now.

When everyone starts turning bearish because of “potential rate hikes.”

The question that should really be asked is not:

Will the Fed hike rates?

But:

Have rates at this level actually damaged corporate earnings and credit markets?

If not.

History has already proven many times:

Rate hikes can continue.
Treasury yields can remain very high.
The market can be overwhelmingly bearish.

Stocks can still rise.

A true major top often does not occur when everyone is discussing “whether rates will be hiked.”

It occurs when high rates have already begun creating cracks in the real economy and the credit chain.

So right now, do not focus only on the Fed.

Watch earnings.
Watch AI capital expenditure.
Watch credit.

These three things are the underlying switches that truly determine when this bull market ends.