S&P 500 Returns After Interest Rate Cuts: Key Points
Current expectations for U.S. interest rate cuts are rising due to weaker economic data and easing inflation, marking the first potential cuts since 2020.
Historical performance shows that the S&P 500 often experiences a decline in the first three months after a rate cut, but typically rebounds by the six-month mark.
On average, the S&P 500 sees a 4.9% increase one year after rate cuts, with positive returns occurring nearly 70% of the time.
Yearly returns include:
- In 1973, the market dropped by 10.2% after three months, 6.2% after six months, and fell 36.0% after one year.
- In 1982, it decreased by 4.8% after three months but rose 17.4% after six months and 36.5% after one year.
- In 2019, there was a 3.8% increase after three months, a 13.3% increase after six months, and a 14.5% increase after one year.
The impact of earnings growth is significant. When earnings are positive, average returns can reach 14% one year later. Conversely, if earnings decline, average returns drop to 7%.
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