Can The Fed Cut With Stocks Up Big?

Can The Fed Cut With Stocks Up Big?

June 26, 2019

The Federal Reserve (Fed) will likely cut rates at its next meeting in late July. This begs the question: Will the Fed really cut rates with stocks up so much year to date and near all-time highs? “It might sound strange for the Fed to cut rates with stocks up a lot for the year,” explained LPL Senior Market Strategist Ryan Detrick. “But since 1975, the Fed has cut rates 26 times with the S&P 500 Index up at least 15% for the year, most recently in 1995 and 1998.”

Here’s the catch: A year after those cuts, the S&P 500 was higher 23 out of 26 times—with a very solid average gain of 13.4%. So it would appear monetary policy could be a continued tailwind.

As our LPL Chart of the Day, “Will the Fed Really Cut Rates When Stocks Are Up Big?”, shows, rate cuts when stocks have been up big for the year have actually occurred quite often over the years.

Shifting gears to fixed income, where should you invest for the rest of 2019? In our recently released Midyear Outlook 2019, we explain that we continue to favor investment grade (IG) bonds, with a focus on IG corporates and mortgage-backed securities (MBS). Additionally, we would continue to keep interest rate sensitivity of fixed income portfolios below that of the Bloomberg Barclays U.S. Aggregate Bond Market Index.

For more our views on fixed income and highlights from our Midyear Outlook 2019, please listen to our latest LPL Market Signals podcast.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

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This Research material was prepared by LPL Financial, LLC.

Please see the Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets for additional description and disclosure.

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