The Surprising Thing That Happens to Stock Markets When the Fed Cuts Interest Rates

What we discovered after crunching almost 25 years of data

Nick Maggiulli
Marker
Published in
4 min readMar 13, 2020

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Photo: Xinhua News Agency/Getty Images

TThe Federal Reserve announced last week that they were making an emergency 0.5% cut to the federal funds rate, reducing their target range to 1.00%-1.25%.

Immediately following this announcement, the S&P 500 shot up 2.5% before selling off throughout the rest of the day:

The market wasn’t having it. By the end of the day, the S&P 500 closed down -2.81%.

After seeing this happen in real time, I wanted to know: How do U.S. stocks typically perform after a Fed announcement? Do they go up? Do they decline?

To answer this, I collected data on every change to the federal funds rate since 1994 (when the Fed started publicly announcing their rate changes).

Below is a plot of the S&P 500 and all 73 changes to the federal funds rate over this time period (note: red points = when the Fed cut rates, green points = when the Fed raised rates):

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Nick Maggiulli
Marker

Financial Blogger at OfDollarsAndData.com. Full Disclosure: Not investment advice. See OfDollarsAndData.com/Terms for full disclaimer.