On Wednesday, the Federal Reserve made its first interest rate cut in four years, lowering rates by 50 basis points or 0.5%, which was larger than expected. The market initially dropped but quickly rebounded the next day.
The Fed cut rates from 5.5% to 5%, with the goal of eventually reaching 3% over the next few years. Lower rates are generally good for stocks, especially dividend stocks and REITs, but less favorable for savings accounts.
Many wonder if rate cuts are good or bad for stocks. It depends. In a strong economy, like now, rate cuts are usually bullish. If cuts happen during a recession, stocks tend to fall. It's important to stay invested in high-quality stocks long term rather than reacting to short-term news.
Looking ahead, companies are expected to grow earnings, and the market could see more gains. However, no one can accurately predict when a recession might occur. Historically, markets perform well after rate cuts, particularly when the economy is strong.
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