Timely and Relevant News: The Fed Lowers Interest Rates

September 19, 2024

Thursday's rally suggests market participants are confident in a soft landing. That outcome is far from assured, but for now that optimism is driving the S&P 500 Index to what looks like a positive news.

Rate Cut

The Federal Reserve made the decision to reduce interest rates on Wednesday, September 18th by half a percentage point, or 50 basis points. Just a week prior, there was strong confidence that the Fed would opt for the usual 0.25 percentage point cut. However, that consensus shifted in the days leading up to the decision, with many anticipating a more significant reduction, leaving considerable uncertainty in the market.

The rate cut was a bigger move than many market participants had expected. Officials had debated between a quarter-point and half-point cut, and decided inflation was running low enough to justify the more aggressive option.

The Markets Respond

This move marks the first rate reduction by the Fed in four years. Election-related volatility and seasonality remains on the table. "While we expect to see short-term volatility, the rate cuts could carve the path for strong market gains," said G. Ward Keever, IV, CLU, ChFC, RHU, AEP, CFS, AIF, CKA, President and CEO. Fed officials are expected to make more rate cuts in their two remaining policy meetings this year.

The Dow Jones Industrial Average, S&P 500 and the Nasdaq Composite responded to the initial news on Wednesday by each falling 0.3% and then bounced back sharply on Thursday.

Stocks & Valuations

Stocks have now become more expensive after this latest rally. Lower rates do help support higher valuations, however the earnings will have to come through. Analysts seem overly optimistic with the consensus 2025 S&P 500 earnings estimate still near $280. Even with continued economic growth, that number may be out of reach. Our Covenant Wealth Strategies Investment Team is closely paying attention to market signals - including both fundamentals and technicals – in an effort to "buy the dip" when opportunities arise.

If you have specific questions or would like to discuss your own investment strategy or financial planning needs, we welcome you to call us at 302.234.5655 or email us at contactus@covenantwealthstrategies.com to set up time to discuss further.

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This Research material was prepared by LPL Financial, LLC, FactSet.