Stocks fell 21% on average after first Fed rate cut since the 1970s, says Comerica
"Waiting for interest rate cuts really isn't the hardest part.
While U.S. stocks tend to climb in the lead up to Federal Reserve rate cuts, a historical look at the S&P 500 index shows equities fell 20.5% on average after the central bank first lowered rates in cutting cycles since the 1970s, according to Comerica Wealth Management.
Since 1974, the S&P 500 booked an average gain of 4.6% between the last Fed hike in a cycle and its first cut, but the equity index also lost 20.5% on average after the first Fed cut to its market low, roughly nine months later.
"This is because in normal times, the risk of recession was usually imminent, prompting monetary policymakers to ease conditions," John Lynch, chief investment officer at Comerica, wrote in a Tuesday client note.
"Unfortunately, their timing was typically off, and by the time the Fed acknowledged the need for rate cuts, a recession was already underway.
"While this time could be different, given the bazooka of pandemic stimulus, the expanding U.S. economy, strong labor market, falling inflation and other factors, Lynch also said equity investors should tread carefully, given the stock market's push into record territory to start 2024."Perhaps the Fed can thread the needle and engineer the elusive soft landing without the economic or market disruptions experienced in previous cycles," he said.
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