Recap | Week Ahead | Types of Rate Cuts

“Having, and sticking to, a true long term perspective is the closest you can come to possessing an investing superpower.” – Cliff Asness: Co-Founder of AQR Capital Management

Last week's market recap:

The S&P 500 closed the week up 4.06%. Year-to-date the index is up 19.13%
NASDAQ closed the week up 5.98%. YTD the index is up 18.43%
U.S. Aggregate Bond index closed the week up .51%. YTD the index is up 4.93%
10-Year Treasury Rate decreased, ending the week at 3.66% down from 3.72% the prior week
- Fed Funds Target rate remains at 5.25-5.50%
The 1-Year Treasury is yielding 3.98%
A 6 Month Treasury is yielding 4.60%

The week ahead:

Fed interest rate decision
Retail Sales
Housing market data
Earnings: FedEx, General Mills, and more

Backdrop:

Market volatility has increased recently, but stocks are still delivering strong gains and are near record highs.
Treasury yields touched 15 month lows. Markets are pricing in steep Fed cuts over the next 6-12 months.

What happens after the Fed starts cutting interest rates?

The Fed is expected to start an extended phase of interest rate cuts this week. Right now, Fed Futures are pricing in a 61% chance of a 50bp cut vs a 39% chance of a 25bp cut later this week. The size of the rate cut may not be as important as… “What type of rate cut is this?"

The Fed typically cuts rates for 1 or 3 reasons. They cut because:

there is panic
recession
to normalize rates

This week’s expected rate cut is to “normalize” rates. The chart below takes a look at market performance after different types of rate cuts.

Historically, “normaliztion cuts” have resulted in positive S&P 500 returns 6 and 12 months later. Obviously there are many other factors in the near term that could result in “this time is different.” For most long term investors, they should remain diverisfied and use volaitilty to rebalance and add quality exposure.

As always, let us know if you have any questions.

Best,

CRA Investment Committee

Matt Reynolds CPA, CFP®

Tom Reynolds, CPA

Robert T. Martin, CFA, CFP®

Gordon Shearer Jr., CFP®

Jeff Hilliard, CFP®, CRPC®

Joe McCaffrey, CFP®

Phillip Tompkins, CFP®

* https://www.carsongroup.com/insights/blog/the-potential-impact-of-a-big-rate-cut-its-not-scary/

Important Disclosure Information

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by CRA Financial, LLC [“CRA]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CRA. Please remember to contact CRA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. CRA is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of CRA’s current written Disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.crafinancial.com. Please Note: If you are a CRA client, please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your CRA account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your CRA accounts; and, (3) a description of each comparative benchmark/index is available upon request.

Please Note: Limitations: Neither rankings and/or recognitions by unaffiliated rating services, publications, media, or other organizations, nor the achievement of any professional designation, certification, degree, or license, or any amount of prior experience or success, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if CRA is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers (to the extent applicable). Unless expressly indicated to the contrary, CRA did not pay a fee to be included on any such ranking. No ranking or recognition should be construed as a current or past endorsement of CRA by any of its clients. ANY QUESTIONS: CRA’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including the criteria used for any reflected ranking.