Two and a half weeks left for the September FOMC meeting, when according to Chairman J Powell, the Fed will be ready to act and start the cutting cycle. In the chart below, you can see what happened to the S&P500 12 months after the first rate cut since the 50’s, grouped in two buckets: the red bars indicate the times where there was a recession and the blue bars indicate those instances where there was no recession. The red diamonds indicate the drawdowns. The takeaway: 12 months after the first cut, the market has been positive on average both in recession (8%) and non recession (11%) environments, but the average drawdowns where significantly different: -16% during recessions, -4% in periods with no recession. With history as a reference, we will have volatility, but the market will find its way up provided the Fed does its part.
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