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The much-anticipated rate cut at the Fed’s September meeting will make headlines, but won’t have a big effect on stock prices.

Why a September Rate Cut Likely Won’t Impact Markets Much The financial media and many in the investor community are eyeing the Fed’s September meeting with bated breath. I’m already looking past it. At this stage, markets are pricing in a 100% probability of a 25-basis-point cut, with a very small chance of a larger 50-point move. As I’ve written many times before, markets move on surprises, not widely known information. When it comes to the upcoming Fed decision, the surprise factor is essentially nil. The Fed has been telegraphing its thinking pretty clearly for weeks. Rate cuts make for dramatic headlines, but in practice, they rarely alter the trend already in motion. When the Fed started cutting rates in January 2001 (nearly a year into the dot-com bust), stocks fell another 40% before finally bottoming in 2002. When the Fed cut rates in September 2007, the S&P 500 peaked just a few weeks later. The Global Financial Crisis followed. On both occasions, the cuts were real-time responses to worsening conditions, not tools that fundamentally changed the direction of the cycle. 2 The Data Behind This Market and What It Means for Your Portfolio Markets are already anticipating the Fed’s next move, but rate cuts alone don’t determine long-term returns. What really matters is the data, and today’s fundamentals tell a more complicated story. Our August Stock Market Outlook Report 2 we break down the key fundamentals shaping today’s market, including: Asset allocation guidelines for today’s market environment. Expert forecasts for inflation, rates, and economic trends. Industry tables and rankings to help you spot opportunities. Buy-side and sell-side consensus insights at a glance. And much more! If you have $500,000 or more to invest, claim your free copy of the report and see how today’s policy shifts could shape tomorrow’s opportunities. IT’S FREE. Download our Exclusive August Stock Market Outlook Report 2 Some may offer the counter-argument that Fed cuts in 1974 and 1990 were followed by powerful and lasting stock market rallies. But in those years, the Fed began cutting just months after bear markets had already bottomed. I would argue that stocks rebounded not because of the policy shift, but because the cuts happened to coincide with the early months of a new bull market. The rally was driven by positive forward-looking economic fundamentals and the anticipation of an earnings rebound, not by the central bank. I want to be fair here; however, in acknowledging that rate cut cycles tend to be good for stocks on a forward-looking basis. On average, the S&P 500 has done reasonably well after initial cuts: about 7% forward returns over six months and roughly 12% over 12 months. But investors should not take these averages to mean that the rate cuts are the catalysts for strong returns. The cuts themselves aren’t the deciding factor, the economic and earnings cycles are. Rate cuts help, but they don’t drive. We saw the opposite play out in 2022. For months, Fed officials downplayed the need to raise rates as inflation accelerated. Remember the “inflation is transitory” narrative? When the Fed reversed course in March and began aggressive hikes, the sudden shift was a surprise, jolting investor sentiment. It wasn’t the hikes themselves that drove the bear market, it was the abrupt change in expectations, i.e., the negative surprise. We don’t have that today. In the current environment, we largely see a resilient U.S. economy, even as some signs of slowing are starting to show. In this economic environment, a 25-basis-point cut may steepen the yield curve slightly and marginally encourage lending. But the U.S. economy and credit creation have been holding up just fine with rates at current levels, where they’ve been since December 2022. I don’t think a widely telegraphed 25 basis point cut is going to make a major difference. None of this is to say the direction of rates doesn’t matter. Over the long term, easier monetary policy can support growth at the margin, especially if it steepens the curve and helps banks lend. But investors should remember: The Fed is more often a follower than a leader. Cuts typically reflect conditions already visible in the data, not catalysts that create new ones. Bottom Line for Investors September’s rate cut will be a headline-grabber, but its pricing power on stocks is likely to be minimal, in my view. Markets already know it’s coming, and history shows Fed cuts don’t alter the prevailing trend. Investors should focus less on the drama of Fed decision day and more on the fundamentals—corporate earnings, consumer resilience, and global growth drivers. Those, not a single quarter-point move, are what shape long-term market returns. Rate cuts come and go, but earnings and economic trends set the real direction. To help you keep your portfolio aligned with the fundamentals that matter most, download our August Stock Market Outlook Report 3. Inside, you’ll find: Asset allocation guidelines for today’s market environment. Expert forecasts for inflation, rates, and economic trends. Industry tables and rankings to help you spot opportunities. Buy-side and sell-side consensus insights at a glance. And much more! If you have $500,000 or more to invest, claim your free copy of the report and see how today's policy shifts could shape tomorrow's opportunities. About Zacks Investment Management Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. Our independent research capabilities from our parent company truly distinguish us from other wealth management firms - our strategies are derived from research and innovation, including the proprietary Zacks Rank stock selection model, earnings surprise and estimate revision factors. At Zacks Investment Management, we work with clients with $500,000 or more to invest, and we use this independent research, 35+ years of investment management experience, and tools we’ve developed to design customized investment portfolios based on each client’s individual needs. The end result is investment management that is research driven, results oriented and client focused. Talk to a Zacks Wealth Advisor today. © Zacks Investment Management  |  Privacy Policy 1 Black Rock. April 25, 2025. 2 Zacks Investment Management reserves the right to amend the terms or rescind the free-Stock Market Outlook Report offer at any time and for any reason at its discretion. 3 Zacks Investment Management reserves the right to amend the terms or rescind the free-Stock Market Outlook Report offer at any time and for any reason at its discretion. DISCLOSURE Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals. 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