How Interest Rate Cuts Will Impact Dividend Stocks

Last Wednesday the Federal Reserve enacted its first interest rate cut since the beginning of the pandemic. During the Fed meeting they decided to go with a larger, 50 basis point cut. In the days leading up to the meeting people were speculating they'd either go with a 50 or 25 point cut. The reason they went a little more aggressive was to head off a slowdown in the labor market. With inflation softening and concerns about a possible recession, Jerome Powell explained that they thought it was best to reduce rates as much as they did, in the hope of achieving a soft landing.

While that's still to be determined, the fact is lowering interest rates does have a number of benefits for the economy, and thus the stock market. It's well documented that interest rates and the stock market have an inverse relationship. When rates get cut, the stock market usually performs better. When interest rates go up, the performance of stocks usually falls. The main reason for this is because when rates go up, borrowing money becomes more expensive for companies. This slows down growth, and share prices usually fall. When rates get cut, then borrowing is cheaper, and growth becomes easier. At the same time, if there isn't a soft landing and a recession seems more imminent, then stocks can still fall after a rate cut.

[tinsleyLuna]

I just switched up my Roth IRA to 50% SCHD, 25% SCHX, 25% SCHG, and my Roth 401k is 70% vanguard S&P 500 index, 20% vanguard growth index, and 10% vanguard international index. Seeking best possible ways to grow $350k into $1m+ before retirement in 3 years

[RaymondKeen.]

I would think that a major benefit of dividend investing is that calculating portfolio size needed is not relevant. We don't care about the value of the portfolio. We care about the sustainable income it pays. As you invest you can gradually see the income rise as you invest more and pull the retirement trigger when it's high enough regardless of the market sentiment.

[gingerkilkus]

Biggest lesson i learnt in 2023 in the stock market is that nobody knows what is going to happen next, so practice some humility and follow a strategy with a long term edge.

[Patriciabanks]

I’m curious about how dividend income from these players stacks up against the S&P 500. With inflation rising, how can I grow my $350K cash reserve into 7 figures in the next 2 years?

[Billclint-if]

invest in stable stocks, my rule: if you previously liked the stock, then you should love it at a discounted price.

[HodgeChris]

My portfolio doesn’t just cater to dividend stocks. I hold $VFIAX (S&P 500 index fund) in my Roth IRA and $VTI (Total Stock Market ETF) in my taxable brokerage account. Two of my largest holdings. The individual dividend stock positions all complement the index holdings.

[slkttop]

Love your content! Have a list of around 10 of your well-researched picks ready to go. But... not yet. Since I am not in a hurry, I plan to wait for a quarter and see how things look. Glad you mentioned the possibility of a recession after "too little, too late" rate cuts, which often happen. Take a look at a chart any of your fave Divy Bull picks and how they performed in 2008 or, even 2020. and you can get an idea of the discounts that are at least "possible". At those prices, one would never need to worry about the share price of their divy portfolio again.

[cryvn]

I think the market is hyped about rate cuts but once REAL jobs data and consumer confidence comes in reality will come crashing down on their face.
I am not selling anything but I hold a sizeable cash position for this event.

I might be wrong but stock valuations now look way too high.

[dogmom-ptwe]

I recently read an article about a man who identified AI stocks before the AI boom, highlighting the importance of information and insight. I believe AI is poised to enter a new phase, and I aim to position my $200k investment portfolio to capitalize on significant gains.

[juliocs]

What do you recommend to do with this port strike news? What to buy? Hold? Etc…ty

[LindaL.Fielder]

I have been a dividend focused investor for a long time. This does not mean I don't own growth stocks, I do. A well rounded portfolio should be a mixture of both categories. One way to minimize the anxiety out of stock market investing, is to make sure you keep a large cash cushion. I invest in the market, but never put all my money in market.

[BenMaclung]

The FED knows they aren't committed to attacking inflation. They are going to continue to inflate, stocks and commodities will continue to go up with everything else. You can't just sit on cash waiting for a crash, get your money working for you, start buying in slowly and then gradually increase the pace of buying as the prices continue to drop.

[briansmith]

Can you do a video on the schd stock split?

[tritosac]

I am looking at adding more to my UNIT position. But my only hang up is I have read they have stopped their dividend for the time being. It has something to do with the Windstream merger. Is that true?

[bosnianxcii]

Can you please make a video of quarterly stock that hit different months? Trying to even out my profits

[jaymcdeewin]

When the Fed cuts interest rates, there has only been one soft landing. All the other times have led directly into recessions.

[Markus-dz]

How do most of you guys still make profit, even with the downturn of the economy and ever increasing life standards

[morrismonet]

Companies are laying off even as the Fed cuts rates. They see a bad future. Recession is on the horizon. I would run like a banshee from financial stocks.

[KO-gjug]

Cutting rates after an inflationary cycle has always ended in recession. So actually the opposite of this video.