Blokland’s daily sketch
Insurance rate cuts benefit stock markets
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.
As a senior portfolio manager I use charts to illustrate financial issues every day. I tweet my favorites as @jsblokland and was named 'one of the 50 most important people for investors to follow in 2018' by MarketWatch.
Previous editions of the daily sketch can be found on my personal financial markets blog. All graphics provided are collected from Bloomberg data and public websites. They do not always reflect my personal opinion and may also not necessarily reflect the opinion of Robeco. Please cite all references or quote the original source if replicating content.
