of Fed rate cuts are rising. Notably, following the latest consumer price index report, which was weaker than expected, the odds of Fed rate cuts by September rose sharply. According to the CME, the odds of a 0.25% cut to the Fed rate are now 90%.
Following those comments, the financial markets cruised to new highs. This is unsurprising since the last decade taught investors that stocks rally when the FedSince 2008, stocks are up more than 500% from the lows. The only exceptions to that rally were corrections when the Fed was hiking rates.is the answer no matter what the question. Such is the case again as Fed rate cuts loom.
Rate cuts generally coincide with the Fed working to counter a deflationary economic cycle or financial event. More interestingly, the worse the economic data is, the more bullish investors have become in their search for that policy reversal. While the hope is that the Fed will start dropping interest rates again, the risk skews toward stocks. As noted, the only reason for Fed rate cuts is to offset the risk of an economic recession or a financially related event. Thewill cause a rate decline in such an event. The previous rise in rates equated to a 50% reduction in bond prices. Therefore, a similar rate reversion could increase bond prices by as much as 70% from current yields.