S&P 500 historically returns over 16% in year two of Fed easing cycle, but need to avert recession. Fed cut rates by quarter point, with a 17% gain in year one post initial cuts. Market poised for gains if economy stays strong.
The Federal Reserve has started the second year of its rate-cutting cycle after the last cut in September 2024. Historical data suggests potential significant gains for the S&P 500, with an average return of over 16% in the second year following initial cuts. However, these gains are reliant on the U.S. economy avoiding a recession. The first year of the current cycle saw the S&P 500 return over 17% until September 18, 2025, surpassing the historical average gain for year one. The Fed recently cut its target federal funds rate by another quarter point, continuing its easing policy. Jeff Buchbinder, LPL Financial's Chief Equity Strategist, noted that year two of rate-cutting cycles historically delivers solid gains for stocks if a recession is avoided.