Guessing Game
There has been a great deal of speculation about when and how much the Federal Reserve will cut interest rates this year. These questions have caused ambivalence among investors—and mixed performance in the markets.
That said, the stock market does seem to favor rate cuts, with the S&P 500® Index historically gaining an average of 13.4% in the 12 months immediately following the first in a series of cuts.1 In fact, of the 14 rate-cut cycles since 1928, just two (2001 and 2007) saw negative returns one year later, and both those cycles coincided with recessions—something we've so far been fortunate enough to avoid.
As resilient as the current economy may seem, however, it's important to be prepared for all possibilities. Piling into equities in anticipation of a rate cut is no better than hoarding cash in the face of market volatility. Sticking to your target allocations regardless of current events is often the more prudent way to go—and, of course, reach out to us anytime you need a sounding board or have questions about your strategy.
Charles R. Schwab
Founder & Co-Chairman
1Charles Schwab, with data from Bloomberg and the Federal Reserve, as of 02/02/2024.