Fed head Jerome Powell’s assuring testimony in front of Congress hinted more than ever that a rate cut would be made later this month. But are declining interest rates bullish for stocks?”
Fed head Jerome Powell’s assuring testimony in front of Congress on July 10 hinted more than ever that a rate cut would be made later this month. This sent the major averages soaring to new record highs on the DJIA, S&P 500 and Nasdaq.Many analysts say that a decline in interest rates will be used as fuel for more enthusiasm for stocks.
Here is a chart from our friends at Bob Prechter’s Elliott Wave International that shows the history of rate cuts and the market’s response. The black line graph is the S&P 500 while the blue line is the Fed Funds Target Rate:History shows that when the Fed cuts, stocks decline. When rates stay flat or they hike rates, stocks rise. That is contrary to the fables you hear from many analysts.
One of the most valuable economic numbers is the PMI . The PMIs just released for Chicago and NY State are in “contraction” territory, below 50. That means"recession." Does anyone care? They should. This interpretation of the weak PMI data caused the EU markets to have a bounce. Who knows, if they announced their economy was going into"QE would be interpreted by the market that central bankers are getting very worried about a financial market “event” that could cause this house of cards of debt to collapse.
Always remember, when just about everyone is bullish on the markets, it usually pays to be on the other side.[/tweet_quote]In the book, I predicted that the global financial system would go to a near-meltdown state in 2008. That forecast was widely disregarded and most investors didn’t believe that would happen.
On March 9, after the weekend, I gave buy recommendations, writing, “the up-move will last longer than even the bulls expect.” In fact, it lasted longer than I had expected.
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