It’s not often that the Federal Reserve eases monetary policy with the stock market this strong. But when it does, it’s like throwing gasoline on a fire. The Fed is widely expected to lower its overnight rate by a quarter percentage point on Wednesday. That would take place with the S & P 500 at record levels. The benchmark closed at 6,890.89 on Tuesday and briefly traded above 6,900 for the first time. JPMorgan’s trading desk counts only four other instances in which rates were lowered with the S & P 500 at an all-time high. One year out, the benchmark was higher each time with an average return of 20%, according to JPMorgan. The worst return was 15%. .SPX YTD mountain SPX year to date “That alone should be enough to get the market fully bulled up,” JPMorgan traders said. The cases are rare because typically the Fed cuts rates to boost a weakening economy that’s teetering on a recession and already hitting the stock market. Today is a rather unique environment where the Fed is trying to unwind a tightening policy that was needed to break a post-pandemic inflation spike. The economy today is showing very few signs of a recession, but is showing some recent labor weakness and a big bifurcation in confidence among high income and lower income groups. Ways to trade melt-up Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities, advised clients buy call options on the Invesco QQQ Trust expiring in late November and December. “With financial conditions easing and retail participation at record highs, upside convexity remains attractively priced. This is an opportune setup to hedge right-tail exposure ahead of major tech earnings and a potential right-tail chase,” he said this week. Specifically, he highlighted the $655 calls expiring Nov. 28 and the $670 ones expiring Dec. 31. The QQQ fund tracks the tech-heavy Nasdaq-100 index. Call options give buyers the right to buy shares of the underlying asset at a set price for a specified period. Traders at Morgan Stanley highlighted health care stocks as potential beneficiaries from rate cuts into 2026. “The team notes Biotech, in particular, tends to see strong relative performance 6,12 months post the first Fed cut,” they said. The S & P 500 health care sector has lagged the S & P 500 this year, up just 5.7% while the overall benchmark has jumped 17%. The iShares Biotechnology ETF (IBB) has surged 19.3% in that time. ( Learn the best 2026 strategies from inside the NYSE with Josh Brown and others at CNBC PRO Live. Tickets and info here . )
The Fed has cut rates with the S&P 500 at a record four times before. Here’s what happened next