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Why Did Markets Slip After the Fed Cut Rates?
Hoxton Blog • Why Did Markets Slip After the Fed Cut Rates?
It’s a head-scratcher. The Federal Reserve has just lowered interest rates, a move that usually gives markets a lift, yet shares have stumbled. So what’s going on?
First, it’s about the bigger picture, not just the headline. The Fed did cut rates this week, but uncertainty still hangs over markets. A key reason is the ongoing government shutdown.
The shutdown has created a data blackout. Important reports on jobs, inflation and economic growth are missing or delayed. Without those markers, the Fed is effectively driving through fog, and investors are trying to navigate without a map.
As Chair Jerome Powell put it, in uncertain conditions it’s sensible to “slow down”. In other words, the central bank is being cautious about further cuts and has signalled that another move in December is not guaranteed.
Some investors had been hoping for a faster series of reductions. That gap between expectations and reality is what markets are now adjusting to.
Why Can Shares Fall After a Rate Cut?
There are a few possible reasons:
- Cuts can hint at slower growth ahead – good for borrowing costs, but not for company profits.
- The path matters more than the step – one cut without clarity on the next is less supportive than a clearly signalled series.
- Yields and liquidity also play a role – balance sheet policy, bond supply and investor positioning can all offset the feel-good effect of lower rates.
- Sometimes markets simply buy the rumour and sell the news – if a dovish outcome is already priced in, anything short of that can disappoint.
A Little Perspective Helps
Government shutdowns in the US are nothing new. Since the mid-1970s there have been more than twenty, ranging from a few days to several weeks. They do not halt the entire government, but they do freeze non-essential services and delay key data releases.
That matters because investors and policymakers rely on regular readings of jobs, inflation and growth to take the temperature of the economy. When those numbers go dark, uncertainty rises and markets become more sensitive to rumour and headline swings.
The pattern is familiar. Volatility tends to pick up, headlines turn dramatic, and liquidity thins at the margin. Without fresh data, the Fed has to lean more on surveys and higher-frequency indicators, which can be noisy. In that environment, small surprises carry more weight, and day-to-day moves can look larger than usual.
Once the government reopens and the data calendar restarts, attention shifts back to earnings, employment trends and inflation progress – the fundamentals that drive shares over time.
History bears this out. The 2013 shutdown ran for sixteen days and produced plenty of noise, yet markets regained their footing as operations resumed, and the earnings season progressed.
After the 2018-19 shutdown (the longest on record) shares recovered and went on to climb through 2019 as profits improved and financial conditions eased.
The lesson is not that shutdowns are costless, but that their market impact is usually temporary.
When visibility returns, price action tends to reflect the underlying economy and company results rather than the pause in Washington.
What Should Investors Do When Signals Are Mixed?
- Revisit your plan: goals, time horizon and cash needs.
- Keep your asset mix steady. Let the plan lead, not the headlines.
- Favour quality. Strong balance sheets and durable cash flows win over time.
- Maintain sensible liquidity so you are never a forced seller.
- Stay cost and tax aware. Small leaks add up.
- Automate good habits. Regular investing and rebalancing reduce emotion.
- Size positions to your tolerance for risk and sleep well at night.
The noise can feel overwhelming at times, but patience tends to be rewarded. Rate paths become clearer, shutdowns end, and new data restores visibility.
Markets don’t need perfection, just progress. Stay steady, stick to the process, and let time in the market do the heavy lifting.
Beneath the Headlines
Away from the drama, many businesses continue to thrive. Nvidia, for example, recently saw its market value rise above $5 trillion, thanks to its leadership in artificial intelligence.
That kind of compounding doesn’t happen by chance. It reflects real demand, expanding use cases and a long runway for investment in computing and software.
Apple, Microsoft and other market leaders are still delivering strong earnings and innovation, showing that the backbone of the market (the companies themselves) remains healthy.
Margins rise and fall with the cycle, but the steady flow of new products, services and subscription income is what drives long-term returns.
What If There’s a Pullback?
It’s possible we could see a short-term drop as traders react to the Fed’s caution and the ongoing shutdown. A correction – roughly a 10% decline from recent highs – can feel uncomfortable but is part of normal market behaviour.
It’s not the same as a crash, which is far rarer and usually linked to deep economic problems or a financial shock. Corrections often reset valuations, shake out short-term traders and set the stage for the next advance.
History offers perspective. Market shocks pass, shutdowns are resolved, and companies keep creating value.
The debt ceiling scare in 2011, the shutdown in 2013, the rate jitters in 2018, and the pandemic plunge in 2020 all felt extraordinary at the time. Yet investors who stayed the course saw markets recover and reach new highs.
Time in the market has consistently beaten attempts to time every downturn.
Taking Calm, Practical Action
As the saying goes: bad investors panic sell, good investors do nothing, and great investors take action.
In practice, “taking action” often means sticking to your plan and keeping a level head through the headlines.
- Rebalance – trim what has run hot and top up what’s lagging to maintain your target mix.
- Upgrade quality – use market weakness to move into stronger companies with durable cash flows.
- Keep a cash buffer – if you have near-term spending needs, hold enough to avoid being a forced seller.
- Pound-cost average – regular investing helps smooth the bumps.
- Be tax and cost aware – harvest losses where appropriate and avoid unnecessary churn.
- Check your risk, not the headlines – revisit your goals and timeframes rather than reacting to noise.
Just as important is what not to do: don’t abandon a diversified plan for a few story stocks, don’t use leverage to chase returns, and don’t let short-term narratives steer long-term decisions.
If history is any guide, this too shall pass. Uncertainty fades, policy paths clarify, and fundamentals reassert themselves.
Investors who stay patient and keep steady habits are the ones most likely to come out ahead.
If you’d like to discuss your portfolio, review your long-term plan, or simply seek reassurance during uncertain times, reach out to our client services team at client.services@hoxtonwealth.com or through our global WhatsApp line at +44 7384 100200.
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