🤑 It doesn’t get more affordable. Grab this 60% OFF Black Friday offer before it disappears…CLAIM SALE

How the S&P 500 traded after the first rate cut ahead of the past 2 recessions

Published 2024-09-20, 06:40 a/m
© Reuters.
US500
-

Investing.com -- The S&P 500 surged 1.7% yesterday on hopes that the Federal Reserve's rate cuts will stave off a recession.

However, BCA Research warned in a note that long-term rates, which are more crucial to the economy than short-term ones, have actually risen since the Fed's recent meeting.

To provide perspective, BCA Research highlights what happened after similar 50 basis-point rate cuts in the lead-up to the last two recessions.

Both instances saw stock market gains immediately following the cuts, but they were followed by significant losses in the months ahead.

BCA explains that on January 3, 2001, the Fed delivered a surprise 50 bps rate cut four weeks before its scheduled meeting. The S&P 500 responded with a sharp 5.01% increase by the end of the day. However, they add that over the following three months, the index dropped 17.9%, and over the next 12 months, it fell 13.5%.

Meanwhile, BCA notes that similarly, on September 18, 2007, the Fed chose a 50 bps rate cut amid debates over whether the cut should be 25 or 50 bps. The S&P 500 jumped 2.92% on the news. But in the three months following that cut, the index declined by 4.3%, and over the subsequent 12 months, it plunged by 20.6%.

BCA Research analysts suggest that while rate cuts may fuel initial stock market gains, caution is warranted, as on previous occasions, those gains have often been followed by significant downturns in the past.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.