Will The Fed Cut With Stocks At New Highs?

“Don’t fight the Fed.” — Marty Zwieg

After Federal Reserve (Fed) Chair Jerome Powell’s congressional testimony this week, it appears at least a 25 basis point (.25%) cut is in the cards on July 31. This would be the first rate cut since 2008, and it would come after nine consecutive 25 basis point hikes beginning in December 2015.

We continue to expect a 25 basis point cut and don’t anticipate a 50 basis point (.50%) cut, as we discussed in more detail in The Deep Rate Cut Debate.

However, the bigger questions are: What does a rate cut mean? And can it even happen with stocks at new highs?

“Is it even possible for the Fed to cut rates with stocks near all-time highs?” asked LPL Research Senior Market Strategist Ryan Detrick. “As it turns out, since 1980, the Fed has cut rates 17 times when the S&P 500 Index was within 2% of a new high—and stocks were higher a year later every single time.”

As our LPL Chart of the Day shows, Can The Fed Cut Rates With Stocks At New Highs?, rate cut with stocks near all-time highs has had extremely bullish results going out a year. Of course, we don’t know where stocks will be at the end of this month when a cut would likely take place, but the bottom line is that it isn’t impossible to have a cut when the S&P 500 is near highs, and if it happens, history shows us the bull could have a few more tricks up his sleeves.

 

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (Member FINRA/SIPC).  Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL is not an affiliate of and makes no representation with respect to such entity.

If your advisor is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL may also be employees of the bank/credit union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union. Securities and insurance offered through LPL or its affiliates are:

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit

Member FINRA /SIPC

For Public Use | Tracking # 1-872138