By the Numbers

Playing a Fed Cut: Past Winners

Fed Fund Futures are indicating an ~80% probability that the Fed will cut rates 25 basis points today.  This would bring the target Fed Funds rate down to 2.0%, its lowest level since December 2004.  Rate cuts tend to be good for financial stocks as the banks can borrow more cheaply, but are there other potential trades to look for?

Here are the top S&P 500 gainers for each of the past three Fed cuts.  Financials were the big winners with the 75 bps cut on March 18.  After being beaten up so badly, they soared on the Fed news.  At the January 30 FOMC announcement, there was more of a mix of winners.  For the January 22 intermediate cut (between FOMC Meetings), Financials and Consumer Discretionary stocks led the charge.  Interestingly, Ambac made the list 2 of the past three times, but is still down 83% YTD. 

Key today will be the comments on the economy vs. inflation.  Will the Fed signal that the economy is starting to improve and that inflation is now its primary concern or will signs of a continued slowdown point to more cuts in the future?