If you ever have any questions about how rate cuts affect your portfolio or anything else, please let us know how we can support you.
Curio Wealth Quarterly Market Review for Q3 2024
Interest Rate Cuts
After months of will-they-or-won’t-they speculation, the Federal Reserve cut interest rates in September. And it was a relatively big one: the half-percentage-point decrease was the biggest the Fed has made since its emergency rate reductions in March 2020 at the onset of the pandemic. Before that, the country hadn’t seen a half a point decrease since the global financial crisis in 2008.
With these cuts, policymakers acknowledged the progress they’ve made in wrangling inflation, which peaked at 9.1% in June 2022 and hit 2.5% this August, nearing the Fed’s traditional 2% target rate. The Fed fell short of declaring all-out victory, but conveyed their confidence in the current health of the economy.
If you’re wondering what the big rate cut actually means for you and your money, you will likely get wildly different—and in some cases wildly misleading—answers, depending on whom you ask.
So what impact will a rate cut have on the stock market? Some say lower rates will help stocks, since it’s cheaper for companies to borrow…except that historically, higher interest rates tend to be associated with higher stock prices. That tracks with recent history: the S&P 500 has been up about 30% since the Fed started raising rates in March 2022.
Fact is, it’s hard to know what will happen after the Fed cuts. When the evidence and data are examined closely, there is no consistent relationship between rates and stock prices that would give investors an edge in predicting what to do next; and it is especially unclear what will happen given the extraordinary circumstances of the last few years.
Amid this uncertainty, investors may take comfort in remembering that the market is an incredibly sensitive pricing mechanism. By the time a cut is made, that information has already been included in all manner of financial instruments, from stocks to bank loans. So if you have the impulse to make moves to take advantage of—or protect yourself from—whatever might come, you’re probably too late.
That’s not a bad thing. After all, your best course of action in response to any market development is to stick with your long-term investment plan. Your portfolio is built to work across economic and interest-rate cycles—during which rates may rise and fall several times.
Additionally, these rate cuts may offer a good opportunity in the coming months to make some smart money moves, including refinancing debts like mortgages, auto loans, or student debt. But when it comes to your long-term investments, you probably don’t need to do anything—at least not unless your own circumstances warrant a change to your existing plans.
Upcoming Elections
With people voting in at least 76 countries in 2024, it looks to be the biggest election year in history, affecting 4.4 billion people, or 60% of the global population. Attention will especially be focused on the US, where the vote for president is expected to again be close. The anticipation building up to elections often brings with it questions about how financial markets will respond. But the outcome of an election is only one of many inputs that can impact stocks and bonds.
How Do Presidential Elections Affect the Market?
During a presidential election year, it’s natural for investors to seek a connection between who wins the White House and which way stocks will go. Some may even wonder whether they should get out of the stock market altogether before the ballots are counted. But a look at history may offer some reassurance: shareholders are investing in companies, not politicians, and stocks haven’t shown much of a party preference.
Should I Brace for Rocky Markets During an Election Month?
You may wonder: What about returns during an election month—when uncertainty may be peaking? Data shows returns in election months have not tended to be that different from returns in any other month. When looking at a broad-market US index going back to 1926, the results don’t reflect any consistent pattern.
What’s an Investor to Do?
While it may be natural to wonder whether you should make an investment decision based on how you think elections might unfold, data suggests such moves are unlikely to result in better returns. On the contrary, these moves may lead to costly mistakes, like getting out of stocks based on a hunch and missing rewarding returns. There is a stronger case for investors to look past elections and maintain a steady approach to markets—in other words, make a long-term plan and stick to it. Vote with your ballot, not your life savings. After all, the market isn’t a reflection of who gets elected president but rather of the efforts of companies to solve problems and provide goods and services. In the long run, innovation succeeds, no matter what politicians do.
If you ever have any questions about how rate cuts, presidential elections, or any other headline of the day may affect your portfolio, please let us know how we can support you
