Stock traders watch news of the Fed rate cut.
Stocks and funds. High-quality stocks and mutual funds that throw off dividends have greatly outperformed cash investments over time. Skrainka's advice to investors is not altered by the rate cut: Seek quality and diversification, and maintain a long-term outlook.
Stock prices have usually risen in the six months after the first Fed rate cut in a series. Technology and consumer discretionary stocks have been the best performers in these periods. Yet some analysts urge caution, saying that neither tech nor consumer spending may soar this time if the Fed cut is too little, too late to prevent a major economic slowdown.
But Sam Stovall, chief investment strategist for Standard & Poor's, says there's a very good chance that a year from now, the market will be up. In fact, 12 months after an initial rate cut, stocks always have risen since 1945 (except in 2001, when Wall Street was grappling with the fallout from the Internet stock bubble and the 9/11 terrorist attacks), with a robust 18.8 percent average increase. "So although you might want to take a little bit of a cautious approach in these coming months," says Stovall, "longer term, you do want to be very cognizant of the old phrase, 'Don't fight the Fed.'" After all, they've got the helicopters.
Sectors to watch
Stocks have historically posted strong gains in the six months after the first in a series of Fed rate cuts. Some analysts say this time could be different.
| S&P 500 sector | Avg. gain over 6 months |
| Technology | 21% |
| Consumer discretionary | 18% |
| Industries | 17% |
| Consumer staples | 14% |
| Energy | 12% |
| Healthcare | 11% |
| Materials | 11% |
| Financials | 10% |
| Utilities | 7% |
| Telecommunications | 4% |
Source: Standard & Poor's (data since 1945)
