Markets & Economy
Rate Cuts Are Coming — History Suggests the First Move Isn’t What Matters
How Markets Have Responded to Rate Cuts in the Past
“All the world’s a stage,
and all the men and women merely players;
They have their exits and their entrances…”
~ Shakespeare’s As You Like It
It’s season finale time for Fed policy drama…
After months of very public pressure from President Trump to cut rates faster, Fed Chair Jerome Powell is expected to exit by May.
So what comes next? And what could it mean for investors?
According to Truth & Trends’ Chief Strategist Enrique Abeyta, the stage is all but set for a major rate-cut cycle:
“… the combination of weakening employment, a new Fed Chair, political pressure from Trump, and the OpenAI crash will lead to the Fed cutting rates — a lot.”
Like Trump, Abeyta’s a Wharton School grad. He’s spent over 25 years tracking technological inflection points across Wall Street, Silicon Valley, and Washington, and once oversaw nearly $4 billion in institutional capital.
Abeyta’s rates estimate: cuts of 100 to 150 basis points over the next 18 months. He continues:
“This will be substantial enough to have a major impact on stocks.”
Which raises the question…
What actually tends to happen to stocks once rate cuts begin?
Turns out, the historical pattern may not be what many investors expect…
I came across some great research from Chuck Carlson and the Horizon team. They recently reviewed how markets have behaved across multiple Fed rate-cut cycles since 1990.
Their findings challenge the popular assumption that the first rate cut is automatically bullish rocket fuel for stocks.
According to Horizon’s review of six Fed rate-cut campaigns since 1990, the S&P 500 has averaged only about a 4% total return in the first 12 months after the initial cut.
The stronger period has historically come later…
In the following 12-month window, average returns improved to roughly 13% as the lower-rate environment worked its way through the system.
Sector behavior has also shown some surprising patterns…
In the first year after cuts begin, more defensive areas like consumer staples have often held up better than the broader market, while energy has frequently lagged.
In the later phase, leadership has often rotated again, with financial stocks historically showing stronger relative performance in that second stretch.
He also notes that leadership often evolves as the cycle develops:
“Early reactions can be defensive…
The more durable moves have historically shown up later, when participation broadens and earnings trends start to line up with the new rate backdrop.”
In other words, those later, follow-through signals often give investors a more useful read on where the market is actually gaining strength.
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Charles B. Carlson, CFA®
CEO & Portfolio Manager of Horizon Investment Services
Investment Visionary, Seasoned Asset Allocator
Charles B. Carlson is a veteran investment adviser with over 25 years of experience in retirement planning, asset allocation, and portfolio management. He is CEO of Horizon Investment Services (CRD #110642), a proud member of the WorthNet partner adviser network.
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Last Revised: February 25, 2026
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