{"id":12968,"date":"2024-01-29T15:33:02","date_gmt":"2024-01-29T15:33:02","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12968"},"modified":"2024-01-29T15:33:02","modified_gmt":"2024-01-29T15:33:02","slug":"how-much-will-the-fed-cut-rates-in-2024-and-does-it-matter","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/how-much-will-the-fed-cut-rates-in-2024-and-does-it-matter\/","title":{"rendered":"How Much Will The Fed Cut Rates In 2024\u2014and Does It Matter?"},"content":{"rendered":"\n

Does It Matter How Many Times the Fed Cuts Rates in 2024?<\/strong><\/p>\n\n\n\n

In my column last week, I wrote that the end of \u2018synchronized global monetary tightening\u2019 could mean the dissipation of a key headwind for stocks. I deliberately did not frame the end of the tightening cycle as a tailwind\u2014stocks\u2019 performance depends on too many other factors, like earnings growth, expectations for economic growth in the year(s) ahead, investor sentiment, geopolitics, and so on.1<\/sup><\/p>\n\n\n\n

This brings me to the question I\u2019m addressing this week: Does it matter how many times the Fed cuts rates in 2024, or if they even cut rates at all?<\/em><\/p>\n\n\n\n

We know from December minutes that the Federal Reserve is projecting the benchmark fed funds rate will end 2024 in a range of 4.5% to 4.75%, which seems to imply three 25-basis-point cuts sometime this year. As of last week, the market (via futures contracts) is betting the Fed will deliver five 25 basis-point-cuts. This disconnect has many investors worried. What happens to stocks if the Fed underdelivers?<\/p>\n\n\n\n

Get Our Tips on Investing in an Uncertain Market!<\/a><\/span><\/strong><\/p>\n\n\n\n

No matter how many times the Fed cuts rates this year, it\u2019s important for investors to be prepared for it by building an investment portfolio that withstands market changes.<\/p>\n\n\n\n

To help you do this, I recommend reading our free, just-released February 2024 Stock Market Outlook Report2<\/sup><\/a><\/span><\/strong>. This report contains some of our key forecasts to consider such as:<\/p>\n\n\n\n

\u2022 Zacks Rank S&P 500 sector picks
\u2022 Current asset allocation guidelines
\u2022 Zacks forecasts for the months ahead
\u2022 Zacks Rank industry tables
\u2022 Buy-side and sell-side consensus at a glance
\u2022 And much more!<\/em><\/p>\n\n\n\n

If you have $500,000 or more to invest and want to take charge of your financial journey, click on the link below to get your free report today!<\/p>\n\n\n\n

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The answer often given is that fewer than expected rate cuts\u2014or worse, no cuts at all\u2014would end the bull market and result in an economic recession. Monetary policy works on a lag, so I think there\u2019s some fairness to the recession argument. Keeping rates too high for too long could result in sustained funding pressure for banks, since deposit rates would need to move steadily higher. This hasn\u2019t been a problem for banks yet\u2014national average savings deposit rates are well below the effective Fed funds rate (0.46% vs. 5% to 5.25%), but eventually, banks will increasingly need to compete for deposits, driving those rates higher. Net interest margins shrink when deposit rates rise closer in line with long rates, which can choke off lending and by extension economic activity and investment. I\u2019m not convinced this is a 2024 issue, however, given that banks (especially large ones) are flush with deposits.<\/p>\n\n\n\n

So, what about the bull market?<\/p>\n\n\n\n

My thinking goes back to a topic I wrote about last year when I tested the potency of the \u201cDon\u2019t fight the Fed\u201d mantra. Over the past few years, I\u2019ve seen financial media focus more and more on the role the Fed plays in determining stock market returns, and I continue to believe the correlation is not only misguided, but also misleading.<\/p>\n\n\n\n

History tells the story. To start, two of the last three rate-cut cycles (2000-2003, 2007-2008) coincided with falling stocks. A third rate cut cycle, which started in 2019 and unexpectedly went into overdrive in 2020 with the pandemic, did not. Looking back even further, Fed cuts in the mid-1980s corresponded with positive stock returns, but the rate cuts from mid-1989 to 1992 aligned with a volatile period that included a bear market.<\/p>\n\n\n\n

On the flip side, recent history proves that stocks can do well even as the Federal Reserve is engaged in monetary policy tightening. As seen in the chart below, the Fed was raising rates steadily from 2016 to 2019, and stocks went up almost 30% over that period. Then, in October 2022, a new bull market began even as the Fed was aggressively raising rates and telegraphing its \u201chigher-for-longer\u201d stance on monetary policy.<\/p>\n\n\n\n

Effective Federal Funds Rate, 2014 – Present<\/em><\/strong><\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis3<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n

In short, there just isn\u2019t enough historical evidence\u2014via the correlation between rate hikes\/cuts and stock market performance\u2014to say that it\u2019s all riding on the Fed in 2024. Too many other factors matter, too.<\/p>\n\n\n\n

Bottom Line for Investors<\/strong><\/p>\n\n\n\n

As I\u2019ve written a few times recently, I\u2019m not arguing that monetary policy decisions are meaningless to stock market performance. Interest rate hikes and\/or cuts are key factors determining financial conditions and the outlook for earnings and growth, which in turn makes them a critical factor driving stock prices.<\/p>\n\n\n\n

The point I\u2019ve been making recently, however, is that monetary policy isn\u2019t the only factor<\/em> driving stock returns, and the Fed doesn\u2019t have make-or-break power over the stock market. At the end of the day, a strong fundamental economy and rising earnings matter far more than two, three, five, or zero rate cuts in the new year. History tells us as much.<\/p>\n\n\n\n

I believe there are other influential market factors that investors should review during this time. So today, I\u2019m offering all Mitch on the Market readers our Just-Released February 2024 Stock Market Outlook Report4<\/sup><\/a><\/span><\/strong> to help you assess and gain insights into your own investment portfolio.<\/p>\n\n\n\n

This report looks at several factors that are producing optimism right now and contains some of our key forecasts to consider, such as:<\/p>\n\n\n\n

\u2022 Zacks Rank S&P 500 sector picks
\u2022 Current asset allocation guidelines
\u2022 Zacks forecasts for the months ahead
\u2022 Zacks Rank industry tables
\u2022 Buy-side and sell-side consensus at a glance
\u2022 And much more!<\/em><\/p>\n\n\n\n

If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<\/p>\n","protected":false},"excerpt":{"rendered":"

Mitch looks at the Fed’s expected monetary policy for the year ahead\u2014and how much those decisions will affect the market in 2024.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-12968","post","type-post","status-publish","format-standard","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12968","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=12968"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12968\/revisions"}],"predecessor-version":[{"id":12971,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12968\/revisions\/12971"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=12968"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=12968"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=12968"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}