Investors cheered first rate cuts in over four years, boosting SP 500 to new records
High stock valuations may limit further gains despite lower rates
Future stock market drivers include earnings and economic growth

NEW YORK, Sept 20 Reuters As the Federal Reserve kicks off a longawaited rate cutting cycle, some investors are wary that richly valued U.S. stocks may have already priced in the benefits of easier monetary policy, making it harder for markets to rise much further.

Investors on Thursday cheered the first rate cuts in more than four years, sending the SP 500 to fresh records a day after the Fed reduced borrowing costs by a hefty 50 basis points to shore up the economy.

History supports such bullishness, especially if the Feds assurances of a stillhealthy U.S. economy pan out. The SP 500 has gained an average of 18 a year following the first rate cut in an easing cycle as long as the economy avoids recession, according to Evercore ISI data since 1970.

But stock valuations have climbed in recent months, as investors anticipating Fed cuts piled in to equities and other assets seen as benefiting from looser monetary policy. That has left the SP 500 trading at over 21 times forward earnings, well above its longterm average of 15.7 times. The index has climbed 20 this year, even as U.S. employment growth has been weaker than expected in recent months.

As a result, the nearterm upside from just lower rates is somewhat limited, said Robert Pavlik, senior…