The Fed could cut interest rates in 2024. How investors can prepare

Falling interest rates are generally a boon for the stock market, advisors said. Among the reasons: Businesses can borrow money more cheaply and are more likely to make big investments in their companies as a result.

However, 2024 is unlikely to see a repeat of stocks’ stellar performance from last year, advisors said.

The S&P 500 U.S. stock index rose 24% in 2023 following a year-end rally. That surge was partly forward-looking, reflecting investors’ expectations for lower interest rates in 2024.

“The stock market is the great anticipation machine,” said Charlie Fitzgerald III, a certified financial planner based in Orlando, Florida.

“If anyone was trying to time the market, they may have missed it already,” added Fitzgerald, a founding member of Moisand Fitzgerald Tamayo. “Because it’s what happened in the fourth quarter.”

Of course, that doesn’t mean all market growth is in the rearview mirror. But don’t make the mistake of buying stocks with the expectation of them continuing to rise, he said. (That tendency is called recency bias.)

That said, growth stocks like those in the technology sector are more likely to benefit from lower interest rates than value stocks, said Ted Jenkin, CFP, the founder of oXYGen Financial in Atlanta and a member of CNBC’s Advisor Council.

Cash and cash-like investments — such as high-yield savings accounts, money market funds and certificates of deposit — were among the big beneficiaries of rising interest rates. Rates on cash jumped to their highest level in years.

However, those rates are likely to fall once the Fed starts cutting borrowing costs.

“If you can lock in CD rates [at current levels], this is probably a good time to do it,” Jenkin said. “There are still a lot of places that offer 5%.”

Savers aren’t getting much more interest on longer-term CDs (like those with a five-year term) versus a shorter-term, one-year CD, for example…