Fed Rate Cuts When Stocks are at All-Time Highs - July 17, 2019

Fed Rate Cuts When Stocks are at All-Time Highs

Last week, Fed Chief Powell all but green-lighted a rate cut at the July 31st Fed meeting and seemed to suggest additional cuts may be forthcoming.

The expected rate cut is coming at a time when the Dow1, the S&P 500 Index2 and the NASDAQ3 are at all-time highs (a/o 7/15/19 – MktWatch data).

Have central bankers cut the fed funds rate when stocks are at a record high? You bet they have.

Between 1980 – 1996, 17 separate rate cuts have occurred when the S&P 500 Index was within 2% of its all-time high per LPL Research.

S&P 500 performance one year later—

  • The S&P 500 was up in every instance.
  • Average gain: 15.0%
  • Median gain: 10.4%
  • An easier monetary policy, minus a recession, has historically been supportive of shares.

The Fed’s meeting is two weeks away. We can’t definitively say where the market will be on July 31, i.e., whether we will be within 2% of an all-time high.

Investor’s corner

Long-term successful investors recognize that wealth accumulation is a long-term proposition.

While they acknowledge that market pullbacks are not uncommon, they recognize that the broad-based market indexes have historically had a long-term upward bias.

They also subscribe to the wealth-creating capabilities that are readily available to both large and small investors.