Don't Fight the Fed: The S&P 500 Generally Rallied After the First Rate Cut
The Federal Reserve is widely expected to cut rates by 25 basis points in their March FOMC meeting, bringing the fed funds rate to a target range of 5%-5.25%.
Despite concerns among most investors that the 2023 rally in the S&P 500 has already priced in the effects of the rate cut, historical data depicted in the chart above suggests that the S&P 500 could potentially rally further after the first rate cut.
Throughout the last 7 easing cycles, the S&P 500 only experienced declines 12 months after the first rate cut in 2001 and 2007.
The data suggests that investors would fare well by aligning their investments with the Federal Reserve's policy direction, rather than opposing it—hence the advice, "don't fight the Fed."
With average 12-month and 24-month forward performances at 8% and 26.78%, staying invested proves to be a fruitful strategy for long-term wealth growth.
Currently, several research houses predict a 2024 year-end S&P 500 target price averaging 4,922, indicating a 2.88% upside from Friday’s closing at 4,783. This aligns with historical forward S&P 500 performance after the first rate cut, as the forward 9-month performance (assuming the first rate cut occurs in March) shows an average return of 5.87%.
SPDR S&P 500 Trust ETF ( $SPDR S&P 500 ETF Trust(SPY)$ ), Vanguard S&P 500 ETF ( $Vanguard S&P 500 ETF(VOO)$ ) and iShares S&P 500 ETF ( $iShares Core S&P 500 ETF(IVV)$ ) are three of the largest S&P500 index funds available.
We prefer SPY due to its highest AUM at USD 483 billion and a 90-day average aggregate volume of 80 million.
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