What happens when the Fed cuts rates?

⚠️ “A quarter-point cut from the Fed: Get ready for volatility—and a possible market rebound?”

📌 What happens when the Fed cuts rates?

🔍 1. Stocks often increase... over time

Historically, U.S. stock markets tend to outperform after rate cuts:

• After the first cut since 1980, the S&P 500 rose approximately 14% in the following 12 months, with most of the recovery occurring amid expansion.

• Even excluding recession periods, returns were strong: around 20.6% in growth scenarios.

• Small caps and cyclicals often lead the charge, while defensives lag behind—but volatility remains high.

⚠️ But...

Volatility typically increases in the months surrounding the first cut; expect erratic price movements before the big move.

🏦 2. Bond yields react in unexpected ways

• Long-term bond yields may rise even when the Fed cuts, as investors factor in future growth or inflation hopes.

• Investors are currently avoiding long-term bonds, focusing instead on short-term notes and yield curve strategies.

• This dynamic may steepen the yield curve, potentially signaling healthier credit conditions ahead.

🌍 3. Geopolitics, oil, and inflation watch 🔥

• Events like tensions in the Middle East can cause oil prices to rise, halting Fed cuts or fostering caution.

• If oil rises, inflation could remain sticky, potentially delaying or limiting real economic support from lower rates.

🛡️ 4. A balancing act: Support vs. Headwinds

• The Fed sees inflation still above target (~2.4%),