Stock Market Insights: Markets react as Fed shifts policy, investors look ahead

Joe Shearrer, CPFA® is Vice President and Wealth Advisor at Fervent Wealth Management.

Markets are entering a new phase following the Federal Reserve’s latest decision, which marked a meaningful shift in its fight to balance inflation and economic growth. While the Fed’s move to lower rates was widely anticipated, the real story is what happens next — how businesses, consumers and investors will respond to this new policy direction.

Inflation remains above the central bank’s 2% target, but signs of a cooling labor market — slower job creation, rising jobless claims — appear to have convinced policymakers that keeping rates elevated may do more harm than good. The Fed’s decision signals a desire to support growth while continuing to monitor price pressures carefully.

For investors, this moment is both an opportunity and a test. Lower rates reduce borrowing costs and can provide a tailwind for risk-based assets, but they also raise the question of whether the economy is slowing more quickly than expected. Markets will now have to sort out whether the Fed acted early enough to engineer a soft landing or whether a period of turbulence lies ahead.

The first leg of this rate-cutting cycle has been a strong one for equities, and history suggests there may be more room to run. Historically, the second year of a rate-cutting cycle has delivered solid gains for stocks — as long as the economy avoids a recession. Markets tend to respond best when cuts are seen as a proactive step to sustain growth rather than a desperate move to fight crisis. With the Fed signaling a willingness to ease further and near-term recession risks appearing limited, the backdrop for equities remains broadly supportive.

Seasonal and technical forces may make the coming weeks even more important. September is historically one of the most challenging months for equities, and recent trading has shown narrowing market breadth — meaning fewer stocks are participating in the rally. If confidence builds around the Fed’s move, participation could broaden and help sustain momentum. If not, a short-term pullback would not be surprising.

The Fed has taken its first step toward a more accommodative stance, but the path forward remains uncertain. The coming months will show whether this move successfully steadies the economy or whether more action will be needed.

Staying grounded amid uncertainty

Periods like this can tempt investors to overreact. A more productive approach is to use volatility as a chance to strengthen your long-term plan. But the right moves can look different depending on where you are in your financial journey.

For long-term growth savers (still working):

• Keep contributing: Market pullbacks can be an advantage when you’re buying shares regularly through 401(k)s or IRAs — you’re purchasing at lower prices.

• Stay growth minded: If retirement is still years away, maintain an allocation that prioritizes growth, even if it means living with some volatility.

• Consider rebalancing: Use this time to make sure your portfolio hasn’t drifted too far from your target allocation due to recent market moves.

For retirees taking income:

• Focus on cash flow: Review dividend income, interest payments and withdrawal rates to ensure they are sustainable if markets stay choppy.

• Maintain a cash reserve: Keeping six–12 months of spending needs in cash or short-term bonds can reduce the need to sell investments at a loss during downturns.

• Be selective: Quality and consistency matter more — favor companies with strong balance sheets and reliable earnings that can weather economic slowdowns.

By aligning your actions with your stage of life, you can keep short-term volatility from derailing long-term goals. Now is a great time to review your strategy with your financial advisor to make sure your plan reflects recent market changes and your evolving needs.

Have a blessed week!

www.FerventWM.com

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

Opinions voiced above are for general information only and not intended as specific advice or recommendations for any person. All performance cited is historical and is no guarantee of future results. All indices are unmanaged and may not be invested directly.

The economic forecast outlined in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.