Negative Reaction to Third Fed Discount Rate Cut No Cause for Concern

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 |  Includes: IVV, SPY
by: Bespoke Investment Group

While the initial reaction to Wednesday's rate cut was positive, the market followed through with a negative performance on Thursday marking the third worst post-fed meeting 'hangover' since 1987. The fact that the market has failed to rally off the most recent cuts, and that the financials, which were the sector that need the help the most, have remained poor performers has caused some to question whether or not the Fed's actions are having any impact.

A look back at prior periods where the Fed lowered rates shows that recent events are not too far out of the norm. In the table below, we looked at the S&P 500's performance during and after periods where the Fed cut the Discount Rate three times without a hike. Including the most recent period, the S&P 500 has risen nine out of ten times from the first cut until the third cut. In the month after the third cut, the S&P 500 loses momentum with an average gain of only 0.24%. However, three months after the third cut performance improves, as the S&P 500 rises an average of 6.8%, with gains in seven out of nine periods.

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