With traders still betting on a quarter-point rate cut in September, we have just one simple question: Why?
After all, gold is near all-time highs. Ditto stocks. Even bitcoin, which hit an all-time high last week and is only down 8%.
The fact of the matter is, the Fed has a history of cutting interest rates while assets are still trending higher, if not near or at all-time highs:
The Fed has often cut interest rates near market highs. (Source: Barchart)
But the good news for investors: 20 out of the past 20 times the Fed has cut rates near all-time highs, stocks have been higher a year later.
The issue? Most of those rate cuts came during the 1980s and 1990s, as inflation continued to tick down, justifying lower Fed fund rates.
Today, with inflation still on the higher end of the Fed’s target, and possibly even starting to track higher, it’s not quite an apples-to-apples comparison.
~ Andrew
P.S. Rate cuts are coming whether we like it or not — it’s just a question of the timing.
But depending on the speed and size of those cuts, they risk kicking off a “most terrifying bull market” in stocks, which sends those valuations into the stratosphere before they come crashing down to earth. And it could help gold push higher.
In short, investors won’t be in stocks because they want to, but because alternatives, like holding money in cash, will just look too risky.
If you have any questions for us about the market, send them our way now to: Addison@GreySwanFraternity.com
