Overview

Barclays strategists, led by Venu Krishna, examined equity performance across every Federal Reserve tightening cycle since the 1990s, assuming markets price in one to two rate hikes by the end of 2026. Their analysis shows that the S&P 500 generated positive annualized returns in every cycle, with gains ranging from 0.1% to 7.8% and a median gain of 5.6% measured from the first hike to the last.

Sector Performance

Technology and energy emerged as the top‑performing sectors during rate‑hike periods, delivering median annualized returns of 14% and 8.8%, respectively. Even in their worst cycles, technology and energy posted only modest declines of ‑1.5% and ‑2%. By contrast, defensive sectors such as real estate, utilities and financials experienced pronounced sell‑offs during the 2022‑2023 inflation battle, while technology and energy stocks surged, highlighting the importance of market perception of the Fed’s stance.

Investor Perception Note

Barclays cautioned that investor sentiment can materially influence outcomes. When the market views the central bank as “ahead of the curve,” defensive assets tend to underperform, whereas a perception of the Fed being “behind the curve” can boost growth‑oriented sectors.

Resilient Software Basket Details

As part of its strategy update, Barclays introduced a rebalanced Resilient Software Basket comprising 20 long‑only technology equities. The basket allocates 10% each to:

  • Palantir Technologies (Z‑Score 1.05)
  • Datadog (Z‑Score 0.92)
  • Adobe (Z‑Score 0.62)
  • Intuit (Z‑Score 0.50)
  • Salesforce (Z‑Score 0.21)

It also assigns 8.99% to Fortinet (Z‑Score 0.41) and 9% to Cadence Design Systems (Z‑Score 0.31). Additional notable holdings include Zscaler (6.38% weight), Autodesk (5.87% weight) and Fair Isaac Corp. (3.9% weight).

Conclusion

Barclays concludes that equities have historically performed positively throughout Fed tightening cycles, especially technology and energy stocks, but stresses that market perception of monetary policy remains a critical driver of sectoral outcomes.