After the First Cut

​The Federal Reserve meets July 30-31 to discuss possible monetary policy actions. Expectations are for the first rate cut since December 2008. But what might this mean for the economy and investors?

Chart for AOM​​

  • In the last 25 years, when rate cuts have been used to stabilize a relatively strong economy, the market has gone on to produce gains. The key to the outcome has been whether the cut occurs in response to large cyclical imbalances that could result in a recession or whether the cut seeks to balance a relatively solid economy that faces challenges. In fact, when the Fed has made its first cut and the Leading Economic Index was positive, as it is today, the returns have been positive in each instance since 1971 over the next 3, 6, 9 and 12 months.​1
  • Market declines following cuts in 2001 and 2007 transpired after the tech bubble burst and the global financial crisis, respectively, and therefore may be less analogous to the current situation.  
  • Today’s economy and strong innovation may resemble 1995 or 1998 when underlying growth in innovation was strong but hiccups in the economy or markets, e.g., the Asian currency crisis in 1998, caused the Fed to loosen monetary policy. 
  • ​If the economy can avoid a recession in the near term, history suggests that the first rate cut is something for investors to welcome and may lead to additional stock market gains.

1Fundstrat.


The views expressed are the views of Fred Alger Management, Inc. as of July 2019. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.​

This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares.

Risk Disclosure: ​Investing in the stock market involves gains and losses and may not be suitable for all investors. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Many technology companies have limited operating histories and prices of these companies’ securities have historically been more volatile than other securities, especially over the short term. Technology companies may also face increased competition, government regulation, and risk of obsolescence due to progress in technological developments.​

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