Generally, a Federal Reserve rate cut is very well-received by the stock market, especially if it’s done during a growing economy.
In fact, there have been six such rate cuts since 1971, and the stock market has rallied after every single one. On average, the stock market has risen 9.7% in the three-month period following a non-recession rate cut. If a similar outcome were to happen now, it would indeed send stocks to new highs.
In December, Powell said the Fed’s program to reduce the bond holdings on its balance sheet was on “autopilot.” Powell later went on and raised short-term rates another one-quarter percent. The Markets didn’t like what Powell said and showed him by tanking.
In early January, during a round table with Janet Yellen and Ben Bernanke, Powell said, there is no preset path for raising rates or adjusting the balance sheet. The Markets like what he had to say, eventually climbing 10%.
Then in late January, Powell said the case for raising rates has weakened somewhat. In addition, Powell made it very clear to the Markets and used the word “patient” eight times in his speech regarding hiking interest rates.
The FOMC meets on July 30 and 3 where they will announce, no rate cuts, 25 basis point rate cut or 50 basis point rate cut. If Powell cut rates by 50 basis point, we will see new all time highs within weeks. Anything other then that and we may see a sell off.
This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.
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