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EC SD | Thx for sharing...
So what happens when the Fed starts cutting rates? It depends... There are two main paths though:
1) Fed cuts rates aggressively. This often happens when they raised rates too high for too long and crashed the economy into a deep recession. This was done in 2001, 2007, and 2019. In this scenario, the stock prices rally up to the start of rate cutting, but then the market goes lower as the depth of recession becomes apparent. The stock market recovers perhaps a year later when the recession is easing and the rates have hit rock bottom.
2) Fed cuts rates slowly. This is the preferred path as the pain of deep recession is avoided. We had these in the 80s and 90s, but not once yet since 2000. In this scenario, the stock prices rally up to the start of the rate cuts and then just keep rallying as that flood of money comes out of the "safe" places like money markets, CDs, etc. and into stocks. This flood of new money chasing a fixed number of equity shares pushes the rally onward and upward for a couple of years or more of extended bull run.
The path here in 2024 is not clear, but it seems at this time we are more likely to have a series of slow rate cuts than a deep recession with rapid rate cuts. If we in fact get that as our future, stocks will have a long run upward ahead, likely for at least a couple of years. In my opinion it is risk-on time and I have already personally rolled 90% of my money market funds into equities, since starting last Nov (when Fed said they were done raising rates). | |
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Money Market Funds
