{"id":13347,"date":"2024-08-26T19:36:01","date_gmt":"2024-08-26T19:36:01","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13347"},"modified":"2024-10-09T13:37:26","modified_gmt":"2024-10-09T13:37:26","slug":"will-september-rate-cuts-hold-off-a-recession","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/will-september-rate-cuts-hold-off-a-recession\/","title":{"rendered":"Will September Rate Cuts Hold Off A Recession?"},"content":{"rendered":"\n<p><strong>A September Rate Cut Isn\u2019t as Important as Many Think<\/strong><\/p>\n\n\n\n<p>July\u2019s consumer price index (CPI) report received a warm reception from equity investors and Fed watchers. Inflation had fallen to its lowest level since 2021 (2.9% year-over-year), essentially paving the way for the first rate cut in years. Like clockwork, the chatter among investors was not if the Fed would cut rates at the September meeting, <em>but by how much<\/em>.<\/p>\n\n\n\n<p>The ensuing 25-basis point vs. 50-basis point debate harkens back to 2023 and early 2024 when futures markets were forecasting six or more rate cuts for 2024, which was at the time double the Fed\u2019s projection. Just about everyone was wrong. As it turned out, the stock market and the U.S. economy did not need lower interest rates to perform well. While the Fed funds rate has remained over 5% for the past year, GDP growth and market returns have been solidly positive.<sup>1<\/sup><\/p>\n\n\n\n<p>Nevertheless, with the Fed poised to cut interest rates at the September meeting, investors are once again being drawn into the narrative that lower rates are essential to stave off a recession and to keep the bull market going.<\/p>\n\n\n\n<p><strong><u><a href=\"https:\/\/go.steadyinvestor.com\/stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2024_08_26&amp;content=stock_market_outlook_report\" data-type=\"link\" data-id=\"https:\/\/go.steadyinvestor.com\/stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2024_08_26&amp;content=stock_market_outlook_report\">Will Rate Cuts Prevent a Recession? Get Our Expert Advice!<\/a><\/u><\/strong><\/p>\n\n\n\n<p>As the debate over the Fed&#8217;s next move intensifies, the market&#8217;s resilience continues to defy expectations. To help you make informed decisions in this unpredictable market, I recommend reading <strong><em><u><a href=\"https:\/\/go.steadyinvestor.com\/stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2024_08_26&amp;content=stock_market_outlook_report\" data-type=\"link\" data-id=\"https:\/\/go.steadyinvestor.com\/stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2024_08_26&amp;content=stock_market_outlook_report\">Zacks\u2019 August Stock Market Outlook Report<sup>2<\/sup><\/a><\/u><\/em><\/strong>. It covers other relevant factors, such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Capital markets commentary: Is the S&amp;P 500 too concentrated?<\/li>\n\n\n\n<li>Key U.S. economic data<\/li>\n\n\n\n<li>Global market data<\/li>\n\n\n\n<li>Zacks S&amp;P 500 earnings insights<\/li>\n\n\n\n<li>Zacks sector picks<\/li>\n\n\n\n<li>And more\u2026<\/li>\n<\/ul>\n\n\n\n<p>Don\u2019t miss the chance to arm yourself with the knowledge to act decisively and protect your investments before the market shifts further. If you have $500,000 or more to invest, request our <strong><u><a href=\"https:\/\/go.steadyinvestor.com\/stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2024_08_26&amp;content=stock_market_outlook_report\" data-type=\"link\" data-id=\"https:\/\/go.steadyinvestor.com\/stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2024_08_26&amp;content=stock_market_outlook_report\">free August Stock Market Outlook Report<sup>2<\/sup><\/a><sup> <\/sup><\/u><\/strong>today!<\/p>\n\n\n\n<p>I still don\u2019t buy that argument.<\/p>\n\n\n\n<p>If we look at every bull market from 1950 onward, it\u2019s easy to find several instances when interest rates were rising, the economy was expanding, and the stock market was going up\u2014all at the same time. It happened in every bull market between 1950 and 1980, and notably from 2004 to 2006 and again from 2015 to 2019.<\/p>\n\n\n\n<p>But you don\u2019t need to be a market historian to find a time when rising interest rates aligned with rising stocks. It happened just over a year ago. In the chart below, readers can see the Fed funds rate (blue line), the 10-year U.S. Treasury bond yield (green line), and the S&amp;P 500 index (red line) from March 2022 to August 16, 2024. In this period, interest rates have climbed, and so have stocks.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"349\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/08\/pic1-2-1024x349.png\" alt=\"\" class=\"wp-image-13348\" srcset=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/08\/pic1-2-1024x349.png 1024w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/08\/pic1-2-300x102.png 300w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/08\/pic1-2-768x262.png 768w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/08\/pic1-2.png 1320w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\"><strong><em>Source: Federal Reserve Bank of St. Louis<sup>3<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n<p>To be more specific, from March 2022 to August 2024, this is what we\u2019ve seen:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Benchmark Fed Funds Rate: went from 0% to 5.25% &#8211; 5.5%<\/li>\n\n\n\n<li>10-year U.S. Treasury Bond: went from 1.75% to 3.9%<\/li>\n\n\n\n<li>S&amp;P 500 Index: went from 4,385 to 5,550 (up over +25%)<\/li>\n<\/ul>\n\n\n\n<p>The idea that the U.S. economy and the stock market\u2019s fate are in the Federal Reserve\u2019s hands is simply not substantiated by what we know from history, or even from 2024. Interest rates have remained \u2018higher-for-longer\u2019 all year, and stocks have powered higher.<\/p>\n\n\n\n<p>Monetary policy decisions are not meaningless, of course, but my argument here is that they are not as important as many investors think them to be.<\/p>\n\n\n\n<p>In my view, what would hurt markets most is if inflation and inflation expectations start to drift higher and become un-anchored from their current 2.5% to 3.5% level, perhaps because of some unforeseen shock in geopolitics or the global economy. If the Fed is forced to go in the other direction\u2014raising rates instead of cutting them because of a negative inflation surprise\u2014I think that could be very detrimental to stocks. For now, however, inflation data continues to show the opposite, with gradually falling prices alongside signs of weakening in the jobs market\u2014neither of which calls for higher rates.<\/p>\n\n\n\n<p><strong>Bottom Line for Investors<\/strong><\/p>\n\n\n\n<p>We know in the current environment that the Fed believes monetary policy is sufficiently restrictive, and with improving inflation readings and the unemployment rate rising from 3.7% at the beginning of the year to 4.3% in July, there is no expectation that interest rates will go any higher.<\/p>\n\n\n\n<p>It\u2019s also true that markets move on surprises, so if the Federal Reserve ended their September meeting with no rate cuts and a hawkish overall tone, I\u2019d expect a volatile response from the stock market. But if the concern is whether the Fed will cut rates by 25 basis points or 50, and\/or whether they will offer guidance for future rate cuts in November and December, I do not believe these are the outcomes influencing stocks most. Investors can frame market outlook in terms of shifting expectations around interest rates, but doing so means ignoring stocks\u2019 main driver\u2014earnings.<\/p>\n\n\n\n<p>To help you navigate this market, I\u2019m offering our comprehensive <strong><em><u><a href=\"https:\/\/go.steadyinvestor.com\/stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2024_08_26&amp;content=stock_market_outlook_report\" data-type=\"link\" data-id=\"https:\/\/go.steadyinvestor.com\/stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2024_08_26&amp;content=stock_market_outlook_report\">August Stock Market Outlook Report<sup>4<\/sup><\/a><\/u><\/em><\/strong>. This report includes a detailed analysis and actionable insights to ensure you remain aligned with your investment strategy, including:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Capital markets commentary: Is the S&amp;P 500 too concentrated?<\/li>\n\n\n\n<li>Key U.S. economic data<\/li>\n\n\n\n<li>Global market data<\/li>\n\n\n\n<li>Zacks S&amp;P 500 earnings insights<\/li>\n\n\n\n<li>Zacks sector picks<\/li>\n\n\n\n<li>And more\u2026<\/li>\n<\/ul>\n\n\n\n<p>If you have $500,000 or more to invest, request our free Stock Market Outlook Report today!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>With inflation falling, many investors and pundits believe a Fed rate cut in September is essential to hold off a recession. Mitch offers his perspective on this issue.<\/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-13347","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\/13347","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=13347"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13347\/revisions"}],"predecessor-version":[{"id":13350,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13347\/revisions\/13350"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=13347"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=13347"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=13347"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}