The Federal Reserve’s Decision and Market Impact
The Federal Reserve is scheduled to meet on September 16–17, with markets largely expecting a 25-basis-point rate cut. While the size of the cut may already be priced in, the real question is how markets will respond afterward.
Two areas are especially important:
- Long-term interest rates: The Fed directly controls short-term rates but yields on 10- and 30-year Treasuries and mortgage rates are set by the broader market. Last year, when the Fed cut rates by 50 basis points in September, long-term rates unexpectedly rose. For monetary easing to stimulate the economy, long-term rates also need to move lower. Early signs of declining long-term rates are emerging ahead of this meeting, and their follow-through will be critical.
- Financial sector performance: This is only the third time in history the Fed has cut rates while financial stocks remained near highs. In past cycles, rate cuts typically came after financial stocks had already sold off. The last time rate cuts coincided with a strong financial sector, 1992, 1995 and 1996, markets remained resilient and performed well. Monitoring both long-term rates and the financial sector will indicate whether today’s environment resembles those mid-90s scenarios.
Government Shutdown Risk and Market Concentration
Beyond monetary policy, the probability of a government shutdown on October 1 has risen sharply, from about 35% in June to roughly 73% today, according to prediction markets. Yet historical data show that shutdowns have had little measurable effect on GDP growth or stock market performance, either during the event or in the months immediately after. Another frequently discussed theme is the concentration of large-cap stocks in the U.S. market. The top 10 U.S. stocks currently make up about 38% of the market index. Although that figure may sound high, it is far lower than in many other countries: Taiwan and Switzerland both exceed 70%, and Australia and Germany are above 60%. The U.S. ranks near the bottom among major markets for index concentration, just above Japan, offering important context when evaluating concentration risk.
Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here
Bobby Norman, CFP®, AIF®, CEPA®
Managing Director
Wealth Consultant
Email Bobby Norman here
Trey Booth, CFA®, AIF®
Chief Investment Officer
Wealth Consultant
Email Trey Booth here
Ty Miller, AIF®
Vice President
Wealth Consultant
Email Ty Miller here
Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.
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