It looks like it’s time to dust off the ol’ crystal ball and get to work! And, if you’re reading this, it means our compliance team hasn’t worn me down yet. But in all seriousness, this message is intended to give you a sense of what may unfold in the coming months—perhaps the next year—regarding the Federal Reserve’s decisions on interest rates.
While the Fed’s actions will certainly play a role, the real indicator of what’s ahead will be the state of the economy during this period of rate cuts. So far, the experts who predicted an imminent recession starting in late 2023 or early 2024 have mostly been off the mark. That’s not to say a recession isn’t on the horizon, but it hasn’t materialized yet.
In the chart below, you’ll see how interest rate hikes have impacted the economy. Investors will be paying close attention to what happens as the Fed begins lowering rates. The chart illustrates the S&P 500’s performance in the 12 months before and after the first rate cut, showing two possible outcomes.
- The dark blue line represents the S&P 500’s performance when the economy does not enter a recession in the 12 months following the first rate cut.
- The light blue line shows the S&P 500’s performance when the economy does enter a recession within that same period.
- Both lines are indexed to 100 at the time of the Fed’s first rate cut for easy comparison.
The chart makes it clear that – moving forward – Fed actions are important to note but we cannot take our eye off the ball of the health of our economy and whether or not we find ourselves in a recession. For Callan, myself, and our team at Resurgent Financial Advisors, the key takeaway is to stay vigilant. We will continue to closely monitor economic data, market trends, and policy changes in the coming months—all of which are likely to influence our investment decisions.
