interest rate cuts and the stock market

We all know that the Fed has reached the end of its hiking cycle and now has interest rate cuts in sight. From a historical perspective, the start of the easing process has been bullish. Going all the way back to 1921 and spanning 24 periods, the DJIA advanced an average of 15% a year following the first cut.

The narrative surrounding interest rate cuts becomes even better when we factor in whether or not the economy was in a recession. When the Fed has avoided recession, stocks have ripped higher, up 24% on average a year later.

In addition, the Fed has made it clear that it plans to cut rates slowly. The S&P 500 widely outperforms in the 1st year of slow easing cycles versus fast ones. Why is that the case? Because in fast easing cycles, it usually means something has gone wrong (such as the start of easing cycles in 2001 and 2007). But in this case, with the economy on sound footing, a slow easing cycle should bode well for stock returns.

Regardless of what you've heard in the financial media, interest rate cuts don't have to doom stocks, particularly when there is no recession and a slow easing cycle.

Election And Seasonal Cycle Stats Point to More Strength Ahead

We're in the 4th year of President Biden's term. Another reason to be bullish is the fact that election years tend to see enhanced gains when we have a new President that's still in his first term. Dating back to 1950, the S&P 500 gains an average of 12.2% under new Presidents, far above the typical election year return of 7.3%.

-- Weekend Wisdom, 3/23/24