The S&P 500 index, serving as a benchmark for the U.S. stock market, is composed of eleven distinct sectors, each with its own unique characteristics and fundamental traits. In recent years, monetary policy has become a key focus in discussions regarding macro-financial connections. A vital area of interest lies in the relationship between the Federal Reserve’s (Fed) conventional monetary policy and the variations among sectors. Our study focused on analysing how traditional monetary policy impacts stock returns across different sectors during policy announcement days, and how well sectoral characteristics account for the findings. We employ an event-study methodology and differentiate between the expected and unexpected components of rate adjustments (“shocks”), with the latter driving market movements. Our research indicates that, on average, a surprise 100-basis-point increase in conventional policy leads to an approximate 2.5% decline in the S&P 500 index. Additionally, our results reveal significant sectoral diversity: defensive sectors, marked by inelastic demand and consistent cash flows, display a more subdued negative reaction to the Fed’s rate changes. In contrast, more leveraged and cyclical sectors, including Information Technology, Consumer Discretionary, and Financials, experience a marked drop in stock market returns on the days of Fed announcements. Our findings contribute to the literature on monetary policy and its relationship with stock market dynamics, offering practical insights into stock market heterogeneity that are relevant for academic researchers and investment professionals alike.