Will interest rate cuts really bring about a bull market?
On August 23, Federal Reserve Chairman Powell hinted that policy may be inclined to cut interest rates, and the market generally believes that an interest rate cut in September is almost a foregone conclusion.
This news triggered a blind pursuit by retail investors, but we should keep in mind historical experience: the Federal Reserve's interest rate cuts are usually a means of responding to economic crises, and do not necessarily lead to immediate rises in the market.
In fact, interest rate cuts do not always bring about an immediate rise in the market. Historically, interest rate cuts have often coincided with economic downturns.
While lowering interest rates is intended to mitigate the recession, it does not fundamentally solve the problem. Therefore, over the longer term, risk markets typically decline during interest rate cuts.
Cutting interest rates usually implies a process that can last 16 months or longer. During this period, changes in economic conditions may cause the market to move in different directions.
For example, in the early stages of a rate cut, the market may not be too pessimistic if there is no significant recession in the economy.
However, the market may react prematurely in anticipation of a rate cut, and investors may choose to sell once the rate cut actually occurs.
Looking at the election cycle, historical data shows that risk markets usually perform well in the period before and after the election.
In many cases, pre-election declines may be followed by a recovery after the election.
However, this is just a historical trend. Historically, there have been situations where election periods have overlapped with economic recessions, but overall, market performance during election periods tends to be better.
To sum up, as long as the economy does not fall into recession in 2024, the combined effect of factors such as the general election at the end of the year, the halving market, interest rate cuts, and FASB may still push the market for the better.