What do rate cuts tell us about the future?

The wait is over. After four years, the Federal Reserve has cut its benchmark rate by 50 base points, bringing it to a range of 4.75% to 5.00%. This move could signal a new direction for markets in the coming months. However, for investors with a long-term strategy, these events are only part of the noise.
Here’s a look at the historical performance of markets following the first rate cut:
- Positive performance in the past: Since 1974, the S&P 500 has shown positive returns 80% of the time in the 12 months following the first rate cut, with an average return of 15%. Over three years, the average return is 12%.
- Caution in recession scenarios: If the rate cut is accompanied by a recession, as happened in 2001, 2007, and 2019, the S&P 500 fell by an average of 8% in the following 12 months. Over three years, it remained stable.
- More optimistic scenario: In an environment of rate cuts without a recession, markets have generated an average return of 22% in the first 12 months and 15% over three years.
In summary, while there is still debate about whether we will see a recession, it’s important to remember that extending your investment horizon increases the probability of achieving your goals.
Future Returns of the S&P 500 After a Rate Cut

- Past performance does not guarantee future results.
Source: Morningstar
Future Returns of the S&P 500 After a Rate Cut + Recession

- The data excludes easing cycles in 1974, 1980, and 1981, as recessions were already underway when the Fed made the first cut. Past performance does not guarantee future results.
Source: Morningstar