As we hit a pivotal point in US interest rate policy, what can investors expect from large and small caps if history provides a clue?

 

Equity Prices Rebased to 0 on the Date of the First Cut
Analysis from 1977 to August 2024
Chart Chart

Source: Bloomberg, as of August 2024. The major Federal Reserve easing cycles began on April 1, 1980; June 1, 1981; October 2, 1984; October 19, 1987; June 5, 1989; July 6, 1995; September 29, 1998; January 3, 2001; September 18, 2007; and July 31, 2019. Among these, the recessionary periods were April 1, 1980; June 1, 1981; June 5, 1989; January 3, 2001; and September 18, 2007. The non-recessionary periods were October 2, 1984; October 19, 1987; July 6, 1995; September 29, 1998; and July 31, 2019.

 

  • Historically, rate-cutting cycles have been associated with above-average returns for both large and small caps.
  • This chart tracks equity prices rebased to zero on the date of the first rate cut, dating back to 1977 through to August 2024.
  • It illustrates the impact of rate-cutting cycles across different market conditions for large caps (S&P500) and small caps (Russell 2000).
  • A key takeaway is that rate-cutting cycles tend to lead to above-average returns for both large-cap and small-cap stocks.
  • The strongest performance is observed in non-recessionary periods.
  • So history shows that the economic backdrop at this pivotal point is one where equities can thrive – both large and small.

 

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