Market track record is not great after rate cuts, history shows
Stocks could be in for a bumpy ride once the Federal Reserve begins cutting interest rates, according to Evercore ISI. Julian Emanuel, strategist at the firm, pulled data going back to 1970 on how stocks perform following the start of rate-cutting cycles from the central bank. Equities tend to pull back in the short term, but the longer-term performance is less uniform, Emanuel said. “Stocks tend to be choppy in the near term either way when the Fed starts cutting,” Emanuel wrote to clients in a Sunday note. That’s of particular interest given the Fed meeting scheduled for this week. Fed funds futures are pricing in a 100% probability of at least a quarter-point decrease, according to CME’s FedWatch tool. But the S & P 500 has slid 1.3% on average in the 30 days following the commencement of a rate cut cycle, Evercore’s data shows. The tech-concentrated Nasdaq-100 , meanwhile, has dropped 1.8% on average. From there, Emanuel split past cuts into two buckets: “Because they can” and “because they have to.” These groups correlate to vastly different performances in a year-long period, he found. “The difference is critical for market returns,” Emanuel wrote to clients. .SPX YTD mountain SPX year to date “Because they can” refers to the Fed lowering bowering costs without a severe economic downturn like a recession. Emanuel described the 12-month return for stocks as “robust” when the Fed cuts rate in this type of environment. This bucket would include the new cycle that would begin if the Fed lowers its benchmark rate at the upcoming meeting, Emanuel said. But there’s also the “because they have to” situations, which means a recession or similar economic challenge is driving the Fed’s move. In these cases, Emanuel described the 12-month performance as “anemic.” Looking ahead, Emanuel said the S & P 500 is still on track to end 2026 at 7,750, which implies upside of more than 17% over Friday’s close. He said artificial intelligence-related sectors such as communication services, information technology and consumer discretionary can lead the market. ( Learn the best 2026 strategies from inside the NYSE with Josh Brown and others at CNBC PRO Live. Tickets and info here . )
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