FED Rate Cutting Cycles and a Recessionary/ Continationary SP500

17 июл. 2019 г.

With the upcoming FED meeting 1 week from today, a lot of questions have been asked regarding the essential implications for the equity market in whole-- of which-- the foreign exchange markets both influence and are influenced by. The years 1995 and 1998 represent two situations where a rate cut was followed by a continuation of gains in the market. However, 200 and 2007 were two examples where rate cuts had significantly

By taking a look 9 fed cutting cycles going back 50 years and interesting statistic can be ascertained.

When the FED cuts rates by 25 basis points or less, you tend to see higher forward returns. This is a signal that it's more of an "insurance" cut and that the FED is being proactive in terms of monetary policy and getting ahead of the issue.

1995: +58.2%
1998: +45.95 %

Conversely, if it's a 50 basis point cut or greater, negative returns are then seen by equity markets and significantly reflect an environment of economic recession. This also implies that the FED is too late in terms of effective monetary policy.

2000: -41%
2007: -53.4%

The question is, with an expectation of 83.9% for a 25 basis point cut next week, and pressure from the market of another cut by December, is the FED too late cutting rates?