1. Fed cuts interest rates by 0.25%, the first since December 2022. 2. Rising unemployment risks and inflation concerns highlighted by Fed chair Powell. 3. Trump's tariffs may lead to higher, persistent inflation impacting the economy. 4. Labor market job gains slowed, with unemployment at 4.3%. 5. Concerns of potential stagflation growing amid rising prices and unemployment.
Lower interest rates generally support economic growth and corporate profits, historically, rate cuts boost equity markets. For example, the S&P 500 usually rallies following Fed rate cuts due to increased borrowing and spending.
The Fed's actions directly affect interest rates, which influence investor sentiment and market liquidity, crucial for S&P performance. Rate cuts can stimulate investment, boosting the markets short-term despite long-term inflation concerns.
Immediate responses to rate cuts can lead to stock rallies, but persistent inflation risks loom. Historically, equity responses to Fed cuts are often short-lived if inflation remains elevated, as seen in previous economic cycles.