US Federal Reserve Chair Jerome Powell holds a press conference after the Monetary Policy Committee … More
On March 19, 2025, the Federal Reserve opted to keep its target for the Federal Funds rate unchanged at a range of 4.25% to 4.50%. The FOMC Statement began…
Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty around the economic outlook has increased. The Committee is attentive to the risks to both sides of its dual mandate.
Of course, Jerome H. Powell & his colleagues downgraded their collective real (inflation-adjusted) GDP growth forecast to 1.7% (from 2.1%) for 2025 and raised their inflation projection to 2.7% (from 2.5%), but the Fed Chair at his Press Conference later that day had this to say in his opening remarks…
The economy is strong overall and has made significant progress toward our goals over the past two years. Labor market conditions are solid, and inflation has moved closer to our 2 percent longer-run goal, though it remains somewhat elevated.
Stocks Can Thrive No Matter the Interest Rate Direction
Despite the Fed’s relatively upbeat commentary, we understand that plenty of ink will be spilled over deciphering near-term movements in interest rates. However, history shows that stocks have delivered solid returns, on average, regardless of whether rates are rising or falling. In fact, data from 1954 to 2024 suggests that equities performed well in both high- and low-rate environments:
- When the Fed Funds Rate was above 4.245%, Value stocks returned 15.5%, Dividend Payers 12.1% and Non-Payers 9.1%, on average, over the following 12 months.
- Even when rates were lower, stocks still delivered double-digit returns, with Value stocks returning 12.2% and Growth stocks 10.2%.
Volatility Is the Norm—Not a Reason to Sell
Stocks entered correction (10% or greater decline) territory, based on the S&P 500, on March 13, 2025. While corrections happen every 11 months or so, on average, I understand that they can be disconcerting, especially as “it is different this time.”
Market Corrections (and 10%+ Rallies)
Of course, it is different every time and market downturns are inevitable. I have always been of the mind that the secret to success in stocks is not to get scared out of them, and I think it should be reassuring to note that all previous trips south have been followed by an eventual sizable advance. Just since the launch of The Prudent Speculator in 1977, the S&P 500 has experienced 10% corrections 39 times, with an average loss of 17.83% during those periods in the red. However, each of those declines was followed by a whopping average gain of 40.69%!
The Bottom Line
While economic concerns persist, history suggests that staying invested—especially in Value stocks and Dividend Payers—has consistently rewarded patient investors. The Fed’s stance may shift in the months ahead, and stock prices will always be volatile, but long-term investors should remember legendary investor Charlie Munger’s admonition, “The first rule of compounding. Never interrupt it unnecessarily.”
For those looking to hear more, straight from the horse’s mouth, check out my recent Webinar: 3 Market Myths Debunked and Q&A.
A replay of the event is available here:
3 Market Myths Webinar
And the slide deck is available here:
https://theprudentspeculator.com/wp-content/uploads/2025/03/TPS_webinar_deck_3MarketMyths.pdf
Disclosure: Please note that shares of the stocks mentioned are owned by asset management clients of Kovitz Investment Group Partners, LLC, a SEC registered investment adviser. For a list of stock recommendations like these made in The Prudent Speculator, visit theprudentspeculator.com.
