The Fed surprised the market with a 0.5% rate cut on Tuesday last week and had caused some big market movements.

The S&P 500 moved up 42 on that day itself but is still trading within the range of 1500 and 1530. If it breaks the 1530 resistance, it should be testing the 1550 all time high soon. Check out the S&P 500 chart below:

Does the market ALWAYS move up after a rate cut? I can instantly tell you is a NO There is no such thing as an ALWAYS in the stock market. Let’s evaluate the probabilities instead:

1 year after rate cut:

S&P 500 average return: +18.8%

Chances of positive return: Always (except 2001)

Period analyzed: unknown

Source: US News

6 months after rate cut:

S&P 500 average return: + 10 to 12%

Chances of positive return: unknown

Period analyzed: 10 periods

Special: Consumer discretionary stocks up 18% on average

Source: Sam Stovall Interview, Yahoo! Finance

4 weeks after rate cut:

S&P500 median return: -0.64%

Chances of positive return: unknown

Period analyzed: 19 rate cuts from 1995

Source: BloggingStocks

1 week after rate cut:

S&P500 median return: +0.91%

Chances of positive return: unknown

Period analyzed: 19 rate cuts from 1995

Source: BloggingStocks

5 days after rate cut:

S&P 500 average return: +4.2%

Chances of positive return: 58%

Period analyzed: 19 rate cuts from 1995

Source: The Money Blogs

Summary

In my own opinion, more incentive to enter the market 4 weeks after the rate cut. That will be mid October period. What do you think?

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