Nothing in the stock market is ever guaranteed. But today at 2 p.m. ET, the Fed lowering interest rates is about as close as you can get to a sure thing.

The real question isn’t if they’ll cut, but by how much - 25 basis points (bp) or 50bp.

Rate cuts are the Fed’s most powerful tool to stimulate the economy. When borrowing costs fall, consumers spend more, businesses invest more, and stocks typically benefit.

And history backs this up. Since 1980, the S&P 500 has gained an average of 15% in the 12 months following the first Fed rate cut of a cycle. And when the economy is in an expansion phase – as it is now – the S&P 500 is up about 20% in the following year.

In fact, in 8 of the last 10 easing cycles, stocks were higher a year later. The takeaway? Rate cuts are generally bullish - even if volatility runs high in the short term.

Wall Street is betting on a 25bp cut today, with two more possible before year-end. That would mark the beginning of a true easing cycle. But personally, I could make a strong case for going bigger with a 50bp cut right away. With job growth slowing, the housing market trying to find its footing, and inflation largely tamed, the Fed could send a bold message: “We’re not behind the curve this time.”

1. 25bp cut + dovish tone (most likely).

The Fed trims modestly but signals more cuts are coming. This would be supportive for stocks, though don’t be surprised if we see a quick “buy the rumor, sell the news” dip before the next leg higher.

2. 50bp cut (unlikely, but bullish).

This would shock the market in a good way. It would show the Fed is serious about supporting growth. Historically, when the Fed has surprised with larger cuts, risk assets like small caps and growth stocks tend to outperform in the months ahead.

3. 25bp cut + hawkish tone (worst case).

If Powell hints this is a “one-and-done” move, stocks will likely tumble. That would be the market’s nightmare scenario - tightening dressed up as easing.

Here’s the key: the first two hours after the announcement will be full of noise. Traders will overreact. Algorithms will push stocks around violently. But for long-term investors, this is just one Fed meeting.

What really matters is where rates are headed in the coming months and how that lines up with the megatrends we invest in - AI, robotics, clean energy, biotech, and more. Rate cuts grease the wheels for innovation, capital spending, and ultimately, higher stock prices in those sectors.

So buckle up for the 2 p.m. fireworks. But don’t lose sight of the bigger story: a new easing cycle could be the fuel that powers the next leg of the bull market.

Here’s to the future, 

Matt McCall
Editor, Market Insights