Insurance Rate Cuts Benefit Stock Markets
Jeroen Blokland | Jun 24, 2019 09:57
Historically, Federal Reserve rate cuts that have not been followed by a recession, often dubbed insurance rate cuts, have turned out positively for equity markets.
As the chart from HSBC shows, equities rose roughly 10% on average in the six months after the first rate cut if a recession was avoided, while they fell by the same margin if a recession did follow after the Fed started cutting rates. With the Fed almost certainly lowering rates in July and with relatively few recession lights flashing red, equity markets seem to be in a healthy position to benefit.
That said, a recession did follow initial Fed rate cuts more often than not. More than enough reason not to become too comfortable.
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