Twelve months after the first Fed rate cut of a cycle, SPY (the S&P 500 exchange-traded fund, or ETF) stood higher in four of the six cycles since 1993. It stood lower in the other two. All returns in this article are with dividends counted.
The split followed whether a recession began. SPY rose in all three cycles with no recession, by 18.0% to 22.3%. In the three cycles with one, it fell in two and rose in the third.
Do stocks rise when the Fed cuts rates? Not reliably. SPY was higher 12 months after the first cut in four of six cutting cycles since 1993. It rose in all three cycles with no recession, while two of the three cycles with a recession ended 12 months lower.
The six first-cut returns have a median of 15.5%. A 12-month hold started on any day since 1993 has a median of 14.4%, so the first cut shows no clear edge.
In the 12 months after a first cut, SPY's lowest close was 22.0% to 27.3% below the cut-day close in the recession cycles. It was 0.5% to 12.2% below in the others.
Every US recession since 1993 began within seven months of a first cut. Three of the six first cuts had no recession within 12 months.
What counts as a Fed rate cut?
The Fed sets a target for the Fed Funds Rate, the interest rate banks charge each other for overnight loans. Our guide to the Fed Funds Rate covers it. A cut lowers the target.
Until 15 December 2008 the Fed published one target number. Since then it publishes a range. We use the upper limit.
Dates are effective dates, which can fall a day after the decision of the Federal Open Market Committee (FOMC). A percentage point is the gap between two rates.
How many Fed cutting cycles are there?
A cycle is a run of cuts with no rise in between. The first cut of a cycle is the first cut after at least one rise since the previous cut.
We applied that rule from 29 January 1993, the first day in our SPY file. The target changed 92 times from 4 February 1994 to 17 September 2026: 40 cuts and 52 rises.
The rule picks out six first cuts: 6 July 1995, 29 September 1998, 3 January 2001, 18 September 2007, 1 August 2019 and 19 September 2024. The March 2020 emergency cuts belong to the 2019 cycle, because no rise came between them.
Chart 1 shows the target rate with the six first cuts marked.
Source: Board of Governors of the Federal Reserve System
The target ran from 3.00% in January 1993 to 4.00% in October 2026. It peaked at 6.50% and bottomed at 0.25%.
How did we test what stocks did after a cut?
We took SPY's close on the effective date of each first cut, then its close 12 months later. If that day was not a trading day, we used the last close before it. We also took the 1, 3 and 24 month marks.
The National Bureau of Economic Research (NBER) dates US recessions after the fact. Its page, opened on 30 October 2026, lists March 2001, December 2007 and February 2020 as the peaks before the three recessions since 1993. It lists no peak after February 2020. A recession starts the month after a peak.
A cycle counts as a recession cycle when an NBER recession starts within 12 months after the first cut. Only hindsight makes that grouping. The 2024 cycle counts as a no-recession cycle until NBER dates one.
What did SPY do 12 months after each first cut?
SPY was higher after 12 months in four of the six cycles. The mean was 7.0% and the median 15.5%. Chart 2 shows each cycle, with the recession cycles in orange.
Source: YX Insights price data; NBER recession dates
The three cycles with no recession all rose. SPY gained 20.6% after July 1995, 22.3% after September 1998 and 18.0% after September 2024.
Of the three recession cycles, SPY fell 12.3% after January 2001 and 19.7% after September 2007. It rose 13.0% after August 2019, but the close on 23 March 2020 stood 23.2% below the cut-day close.
The table gives the other marks.
First cut | Size, points | Recession began within 12 months | SPY after 1 month | After 3 months | After 12 months | After 24 months |
|---|---|---|---|---|---|---|
6 Jul 1995 | 0.25 | None | +0.8% | +5.8% | +20.6% | +72.5% |
29 Sep 1998 | 0.25 | None | +4.3% | +18.9% | +22.3% | +39.8% |
3 Jan 2001 | 0.50 | Apr 2001 | -0.1% | -18.0% | -12.3% | -30.4% |
18 Sep 2007 | 0.50 | Jan 2008 | +1.3% | -3.9% | -19.7% | -26.3% |
1 Aug 2019 | 0.25 | Mar 2020 | -0.8% | +4.3% | +13.0% | +54.0% |
19 Sep 2024 | 0.50 | None | +2.7% | +3.0% | +18.0% | +36.9% |
SPY returns with dividends counted, from the close on the effective date of the first cut. Recession months are NBER dates; none is dated after February 2020. Source: YX Insights price data; Board of Governors of the Federal Reserve System; NBER recession dates
SPY was higher in four of six cycles at one month, at three months and at 24 months.
How far did SPY fall in the 12 months after a first cut?
Chart 3 shows the lowest close in the 12 months after each first cut, measured against the cut-day close.
Source: YX Insights price data; NBER recession dates
The three recession cycles fell furthest: 27.3% by 21 September 2001, 22.0% by 17 September 2008 and 23.2% by 23 March 2020. The three others fell 0.5%, 8.0% and 12.2%, the last on 8 April 2025.
Why did the cycles split?
A recession followed the first cut in three of six cycles. It began 3 months after the cut in 2001, 4 months after in 2007 and 7 months after in 2019.
The size of the first cut does not separate the groups. A 0.50 point cut opened two of the three recession cycles and one of the three others.
The sign of the 12-month return went with the recession in five of six cycles. The data cannot separate the effect of a cut from the effect of what else was happening when the Fed cut.
How does that compare with a random start date?
We also took SPY's 12-month return from every trading day from 29 January 1993 to 24 October 2025. That is 8,242 start days. The median was 14.4%. The windows were positive 81.9% of the time.
The six first-cut returns have a median of 15.5%, which is 1.1 percentage points higher. Four of six is 66.7% positive. Six cycles are too few to separate a cut effect from a random start.
Does the result hold under other choices?
We ran three checks.
First, we started from the close after each cut day. The sign of the 12-month return stayed the same in all six cycles.
Second, we changed the cycle rule. Counting any cut after more than six months without one gives nine first cuts.
That adds 6 November 2002, 25 June 2003 and 18 September 2025. SPY rose 16.2%, 18.6% and 16.6% over the next 12 months, with no recession in those windows. Gaps of 12 or 18 months give our six.
Third, we changed the recession window. Windows of 9, 12, 18 and 24 months give the same grouping. A window of 6 months moves the 2019 cycle, where the recession began 7 months later, into the no-recession group. All four cycles in that group then rose.
What does the test leave out?
The test covers one fund and six cycles since 1993. It does not say that cuts moved prices.
Our guide to how stocks behave around Fed meetings covers the days around each decision. Stocks during recessions covers downturns.
Appendix: data and method
From FRED we used the Federal Funds Target Rate (DFEDTAR) to 15 December 2008 and the Federal Funds Target Range Upper Limit (DFEDTARU) after it. The Board of Governors of the Federal Reserve System publishes both. We retrieved them on 30 October 2026.
Recession months come from the NBER recession indicator (USREC), which FRED builds from NBER's dates. SPY prices run from 29 January 1993 to 26 October 2026, 8,493 daily prices.
Our guide to what the Fed does covers the central bank's role.
In SPY since 1993, the first Fed cut of a cycle was followed by a higher market 12 months later in four of six cycles. The three cycles with no recession all rose, while the sign in the others went with the recession.
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Common questions about Fed rate cuts and stocks
Do stocks go up when the Fed cuts rates?
Not reliably. SPY, the S&P 500 ETF, was higher 12 months after the first cut in four of the six cutting cycles since 1993, with dividends counted. All three cycles with no recession rose, by 18.0% to 22.3%. Two of the three cycles with a recession fell.
Do Fed rate cuts mean a recession is coming?
Not always. A recession began within 12 months of the first cut in three of the six cycles since 1993. It did not in the other three. Each of the three US recessions since 1993 began 3, 4 or 7 months after a first cut. Our guide to recession indicators covers other gauges.
Is the Fed cutting rates now?
No. The latest change in the data we opened on 30 October 2026 is a 0.25 point rise that took effect on 17 September 2026. That put the upper limit of the target range at 4.00%. The last cut took effect on 11 December 2025. Our guide on whether interest rates will go down covers the question.
How did the S&P 500 do after the last Fed rate cut?
SPY, the S&P 500 ETF, rose 12.3% from the close on 11 December 2025, when the last cut took effect, to the close on 26 October 2026, with dividends counted. That window is 219 daily prices, shorter than the 12 months used for the six cycles in this article.
DISCLAIMER: This article is intended for educational purposes only. Any information or analysis in this note does not constitute an offer to sell or a solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice, nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.
