GSPY - Rate Decreases: Be Careful What You Wish For?

2024-02-04 01:45:00 ET

Summary

• Since early 2022, the FED lifted the federal funds rate by 5.25% to curb inflation, triggering speculation from pundits over the economic impact and future path of rate increases.
• Recently, the Fed noted that inflation has been tempered by restrictive monetary policy and signaled the likelihood of easing monetary policy this year.
• Equity investors applauded this dovish pivot with a relief rally toward the end of 2023.
• The maximum drawdown that occurred was -20.31% in just two months as a result of the COVID-19 pandemic.
• The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe.

By Michael J. Fleisher

Since early 2022, the Federal Reserve ((FED)) lifted the federal funds rate by 5.25% to curb inflation, triggering speculation from pundits over the economic impact and future path of rate increases. Recently, the Fed noted that inflation has been tempered by restrictive monetary policy and signaled the likelihood of easing monetary policy this year. Equity investors applauded this dovish pivot with a relief rally toward the end of 2023. However, beyond the market response to early signals of a potential decrease in the federal funds rate, we wanted to research the behavior of equities after the Fed actually lowers rates. Furthermore, we wanted to see if the decrease in rates can be used as a signal for future market behavior. In this research, we look at the trailing 12-month change in the federal funds rate going back to the mid-1970s to analyze market returns after the Fed has commenced easing....

For further details see: