The Federal Reserve has employed two primary weapons in its battle to bolster the economy in recent years. One has been its asset-buying programs, known collectively as quantitative easing. Since Fed chair Ben Bernanke announced back in late May that the end may be in sight for that program, the market has reacted badly, with the S&P 500 dropping 2.5 percent since then.
But the other side of the approach is that the Fed has kept interest rates at near-zero levels in hopes of making money available for investment. If and when it eases up on that policy, the markets could react very favorably.
According to a study conducted by Bloomberg News, the Fed has raised interest rates four times in the past 30 years, and the S&P 500 has responded by rallying an average of 16 percent over the next two years. The most recent instance of the Fed hiking interest rates was back in 2004, after which the S&P rose by 11 percent over two years.
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