We Just Witnessed an Ultra-Rare S&P 500 Event That's Occurred 5 Times in 55 Years -- and History Is Crystal Clear What Comes Next

Core Insights - The Federal Open Market Committee (FOMC) is responsible for guiding the nation's monetary policy by adjusting the federal funds rate, which influences lending and mortgage rates [1] - The FOMC's recent decision to lower the federal funds rate by 25 basis points to a range of 3.75% to 4% is notable as it occurred while the S&P 500 was at an all-time high [7][8] - Historical data suggests that the S&P 500 has, on average, increased by 20% one year after similar rate cuts, with the lowest return being a 15% gain [9] Economic Context - The ongoing federal government shutdown has limited the availability of economic data for investors, making the FOMC meeting a focal point for October [2] - The stock market has experienced significant volatility, with the S&P 500 and other major indexes reaching record highs following a brief crash in early April [4][5] Market Performance - The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite have all recently achieved record-closing highs, despite previous corrections [6] - The current bull market has seen the Shiller P/E Ratio peak at 41.20, the second-highest in 154 years, indicating a potentially overvalued market [17] Historical Correlations - The Shiller P/E Ratio, which accounts for average inflation-adjusted EPS over a 10-year period, has historically indicated that sustained multiples above 30 can precede significant market declines [18][20] - While rate cuts at an all-time high have historically led to market gains, the elevated Shiller P/E suggests a growing risk of a market downturn in the future [20]