Market Overview

Data: Multiple Fed Rate Cuts Have Historically Lifted The Market

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Data: Multiple Fed Rate Cuts Have Historically Lifted The Market

The U.S. stock market has reacted positively to the 0.25% rate cut announced Wednesday by the Federal Reserve.

What Happened

The Federal Reserve cut the interest rate for the third time this year.

The U.S. economy also showed less of a slowdown, at 1.9% growth in the third quarter, than the 1.6% growth anticipated by economists.

Market Reaction

S&P 500 gained 0.33%, closing at a record high of 3,046.77 on Wednesday.

Dow Jones Industrial Average closed the day with a 0.43% gain.

NASDAQ Composite added 0.33% as well, closing at 8,303.98.

Third Time's A Charm

The market tends to extend its gains in the six- and 12-month periods following three successive rate cuts of 0.25%, Marketwatch reported, citing LPL Financial data

The S&P 500 gained, on average, 10% over a half-year period and 20% over a year when similar cuts were made in 1975, 1996 and 1998, LPL data shows.

“We’ve seen periods of economic slowdowns that had three consecutive 25 basis point cuts, most recently in the mid- and late 1990s,” Ryan Detrick, LPL’s senior market strategist, told MarketWatch.

“The good news is the economy accelerated after the slowdowns and stocks did quite as well.”

What's Next

The Federal Reserve has signaled that another interest rate cut won’t be coming soon, according to CNBC.

Analysts expressed a belief that the Fed will respond by cutting rates if the market becomes bearish again, apprehending an economic slump.

“It’s the willingness of the Fed to indicate continued flexibility,” Rick Meckler, partner at Cherry Lane Investments, told Reuters. “They said they remain open to what the data shows them. Flexibility is what the market wants to see.”

Posted-In: CNBC LPL Financial Marketwatch ReutersNews Bonds Federal Reserve Markets Best of Benzinga

 

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