Shake it up baby: Fed rate hikes roil stocks

Ever since the Federal Reserve announced its long-awaited interest rate hike last week, things have gotten exciting on Wall Street, though not exactly the kind of excitement most investors might prefer.

When the Fed announced Wednesday that it was raising rates for the first time in nearly a decade, investors initially celebrated, sending the Standard & Poor's 500 index up 1.5%.

The party didn't last long. The S&P fell 1.5% Thursday and another 1.8% Friday for its worst two-day drop since August.

Investors might have to get used to those kinds of swings, because volatility typically picks up after the start of a rate-tightening cycle, says Sam Stovall, U.S. equity strategist at S&P Capital IQ.

In fact, volatility was already on the rise going into the Fed meeting. Nearly two out of every three days this December, the S&P 500 rose or fell 1% on a closing basis, Stovall says. That is double the fewer than 30% of all trading days in 2015 that have had a 1% rise or fall.

If history is any guide, the swings in stock prices will get even more jarring from here.

In the past 50 years, the number of up or down days of at least 1% averaged 16.4 in the three months after am initial Fed rate hike in a tightening cycle, vs. an average of 9.3 for the three months leading up to the hike, according to Stovall.

Monday, at least, the white-knuckle ride scenario didn't quite play out. The benchmark S&P 500 index rose just 0.8%.

Follow David Craig on Twitter @davidgcraig.