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.

 

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