Fed Rate Cuts and Stock Market Performance - November 6, 2019

As expected, the Fed reduced its key lending rate for the third time this year. As we discussed last week, the Fed signaled we probably won’t see a repeat in December, but it did leave room to adjust if conditions warrant.

  • The Fed set a high hurdle for future rate hikes.

Market performance

Six months after three rate cuts in 1985, the S&P 500 Index2 advanced 7.1%. Twelve months after the third cut, the S&P 500 was up 25.5%.

Investor’s corner

How does the broad market perform after 3 rate cuts? Historically, much has depended on economic performance.

Underperformance after 1989, 2001, and 2007 were tied to recessions. Relative strength in 1985, 1988, 1996, and 1998 was aided by economic growth.

While conditions that generally signal a recession aren’t in place today, recessions are difficult to forecast. Therefore, look past the short term. Long term, your financial plan determines performance. It is the roadmap that sets you on the path to your financial goals.