By Catherine Brock,Contributor
Copyright forbes
The Fed has lowered its benchmark interest rate and two more rate cuts may follow before year-end.
Stock prices had mixed results in trading Wednesday as investors digested the Fed’s decision to lower interest rates by 0.25 percentage points. It was the first rate reduction of 2025.
The large-cap S&P 500 index fell less than 0.1% while the technology-focused Nasdaq Composite fell 0.6%. The Dow Jones Industrial Average, focused on blue-chip stocks, rose 0.5%.
The market had anticipated the quarter-point rate decline. When the Fed’s rate decisions come in as expected, stock prices typically don’t move dramatically. The adjustments happen earlier as expectations form, rather than when the decision is finally made.
Despite the market’s muted response, this rate decision was significant. First, it marks the beginning of an easing cycle, the name for a period when the Fed lowers rates gradually over time. The central bank committee projected two more rate reductions in 2025, which would bring the federal funds rate down to a range of 3.5% to 3.75% by year-end.
Second, Fed Chair Jerome Powell noted the complexity of the current economic situation, which is marked by weakening jobs data and lingering inflation. A simultaneous rise in prices and unemployment is difficult to manage. In his words, as quoted by Yahoo Finance, “there is no risk-free path.”
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Stock futures moved higher ahead of the market open on Thursday. Futures tracking the S&P 500 rose 0.8%. Contracts tied to the technology-focused Nasdaq 100 rose 1.1%. And Dow Jones futures rose 0.7%.
Investing & Economic News To Watch Today
These events are on the news-hungry investor’s calendar for September 18:
Initial jobless claims for the week of September 13. Initial jobless claims are expected to be 240,000, down from 263,000 in the prior week.
Philadelphia Fed manufacturing survey. This survey gauges business activity for manufacturers in the Philadelphia area. The index declined in August by 0.3%, but is expected to rebound to 2%.
U.S. leading economic indicators. The Conference Board’s Leading Economic Index predicts business cycle changes. The index has been in decline, falling by 2.7% between January and July 2025. It’s expected to dip 0.2% in the September reading.
FedEx Corporation (FDX) earnings report. Fedex is expected to report EPS of $3.62 vs. $3.60 in the year-ago quarter.
Darden Restaurants (DRI) earnings report. Darden Restaurants is expected to report EPS of $2.01 vs. $1.75 in the year-ago quarter.
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Today’s Trading Lesson
Do you have a targeted allocation? Allocation is the composition of your portfolio across different asset types. The primary asset types are stocks, bonds, cash and alternatives. Identifying how much you should own of each category—your target allocation—is an important risk management strategy.
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To set your target allocation, keep these guidelines in mind:
Stocks provide growth potential, but they can lose value.
Bonds provide income and stability. Their market value can change, but the interest payments and repayment timeline stay the same unless the bond is indexed to something else, like inflation.
The relative amounts of stocks and bonds you hold are two main levers you pull to tailor your investment growth potential and risk profile. A higher percentage of stocks usually delivers better growth opportunity and more volatility. For example, a portfolio of 50% bonds and 50% stocks is moderately conservative, while 10% bonds and 90% stocks is an aggressive growth strategy.
Alternative assets include commodities like gold and agricultural products, real estate and collectibles. These provide diversification, which can reduce portfolio volatility. Commodities and real estate can also be effective inflation hedges because their values rise as prices move up. Alternative assets can be unpredictable, so most investors hold them in small quantities—that is, an allocation of 15% or less.
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Implementing your target allocation is not a one-time effort. Over time, your various assets will generate income and, hopefully, appreciate. If you are reinvesting the income, that along with price changes will alter the values of each asset type, which in turn changes your portfolio’s composition. You could start with a 60% stock allocation that evolves to 65% after a year.
To restore your target allocation, you must periodically shift funds from overweighted assets into underweighted assets—a process called rebalancing.
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