With the Federal Reserve expected to cut interest rates for the first time in four years on Wednesday, it’s time to look at how stocks performed at the start of previous easing cycles. Expectations are high that the market’s already strong performance this year will continue after the Federal Reserve cuts interest rates. The S&P 500 hit a record high on Tuesday and is up more than 18% so far this year. But historical data shows that future performance depends largely on economic conditions. Overall, across all cycles, the S&P 500’s performance after the first rate cut has been largely positive, but there have been some big misses during downturns. Overall, broad market indexes were higher 70% of the time after three months and six months later, and 80% of the time after one year, according to data from Canaccord Genuity, which reviewed the last 10 easing cycles since 1970. . But excluding the post-recession period and using only soft-landing scenarios for calculations (which is the consensus this time), performance gets even better. (Canaccord defines a recession scenario as one in which the economy is already in a downturn or enters a downturn within 12 months of the first rate cut). In years that did not experience a recession during or shortly after the first downgrade of the S&P 500 (such as 1984, 1989, 1995, and 1998), the benchmark was higher 100% of the time 3, 6, and 12 months later. On average, the broad market index is up 10.2% after three months, 14.7% after six months, and 18.6% after one year. .SPX YTD Mountain-Shaped S&P 500 Index, YTD Other investment banks have noticed this difference, with BofA Securities also highlighting the pattern in a recent report. “The easing cycle itself is not necessarily positive. In fact, (S&P 500) average returns after the first rate cut are weaker, but there are clear differences depending on economic conditions,” the firm’s Ohsung Kwon wrote on Monday. S&P The 500 index “rose only 20% of the time over 100 trading days after the first rate cut in a recession in six months, but rose 100% of the time without a recession (up 8% on average),” she said. Broken down by industry, Canaccord Genuity said the three industries with the highest average returns after one year were communications services, information technology and health care. The worst performing sectors 12 months after the rate cut were materials, utilities and consumer discretionary. —CNBC’s Gabriel Cortes contributed to this report.
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