Which Major Assets Performed Best in the Last Three Rate Cuts?

Investor expectations for a September rate cut remain strong after Fed Chair Jerome Powell indicated that the U.S. is "no longer an overheated economy," suggesting a stronger case for easing monetary policy. This optimism supports a bullish stance despite potential challenges from upcoming corporate earnings and political uncertainty.

From the most recent rate-cutting cycle, Bitcoin performed the best, nearly tripling in value throughout the cycle. The U.S. stock market also fared well, with the Nasdaq rising by as much as 64%. Among commodities, copper and crude oil performed the best.

Matt Miskin from John Hancock Investment Management notes that lower rates could aid small-cap companies, which are more sensitive to interest rates due to their reliance on financing. However, rate cuts are not always a sign of smooth sailing, as they can signal a deteriorating economy. A Wells Fargo Investment Institute study found the S&P 500 has historically fallen by an average of 20% in the 250 days following the first rate cut of a cycle. Stocks may perform well if the Fed cuts rates due to falling inflation, but aggressive cuts in response to economic or market disruptions could hurt stock performance.