Prediction: Your Investment Accounts Will Probably Keep Going Up After the Fed Rate Cut

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Wondering if Fed rate cuts will make the stock market go up? See why there is reason for optimism for stock market investors. [[{“value”:”

What does the Fed’s 0.50% rate cut mean for the stock market? On the one hand, no one knows for sure. Stocks go up and down for complicated reasons. There are no guarantees that a Fed interest rate cut, or even several more rate cuts in 2024 and 2025, will make stocks go up.

But if you’re a long-term investor, your stock portfolio is likely to keep going up after Fed rate cuts. That’s because stocks usually go up in the long run — the S&P 500 index has delivered a 10.7% compound average annual growth rate for the past 30 years.

Let’s look at a few reasons why this period of Fed rate cuts could be a good time to keep putting money into your investment accounts.

The stock market (usually) goes up

Is now a good time to invest in the stock market, or are Fed rate cuts a sign that the economy is weakening? I don’t know the answer to that question — no one knows for sure. But if you look at the history of the stock market, if you’re a long-term investor, there is almost never a “bad time” to buy stocks.

Financial advisor Ben Carlson put together a chart on his blog that shows how, most of the time, the S&P 500 index goes up over a several-year time horizon. Yes, the stock market can go down on any given day, month, or year. The S&P 500 index lost about 19% of its value in 2022, for example — if you invested $1,000 in the S&P 500 at the start of 2022, those stocks were only worth $810 by the end of the year.

But the stock market came roaring back and gained about 24% by the end of 2023, and gained another 20% as of Sept. 20, 2024. That $1,000 invested in the S&P 500 index on Jan. 1, 2022 would be worth about $1,200 today. Even a bad year for stocks is still not a “bad time” to buy stocks — if you’re investing for the long term.

Stick with your financial plan

Try not to “time the market.” Some investors might be nervous right now, wondering if now is a bad time to buy stocks, and if Fed rate cuts are a sign that the economy is about to go into recession. It’s true that the job market could weaken, American consumers could put away their credit cards and stop spending, and the economy could go into a downturn that would take stock prices down with it.

But it’s also possible that the stock market could just keep going up in 2025. America’s economy could experience a higher level of growth thanks to lower interest rates.

When borrowing costs are lower, consumers might spend more money. Businesses might be more likely to invest in growth — hiring more people, buying more equipment, creating more opportunities. All of this would likely be good news for the stock market — and good news for your 401(k), IRA, or brokerage account.

Bottom line

No one knows what’s going to happen tomorrow, next month, or for the next few years with the stock market. Interest rate cuts can coincide with stock market gains, or losses. Past performance is no guarantee of future results.

But in general, if you’re investing for retirement or for other long-term goals, you should not be afraid to keep buying stocks as part of your overall financial plan. Fed rate cuts and lower interest rates could be good news for your investment accounts in the long run — and maybe even in the short run.

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