A Look At Fed Easing Cycles In the Post-War Period

With the Fed cutting rates today, we highlight the performance of the S&P 500 during easing cycles.

We define a rate cut cycle as any period where the Fed cut interest rates at least three times without hiking rates. Shaded areas represent periods where we analyzed the Discount Rate. The market has gone up during 11 of the 12 easing cycles analyzed, with the only down period coming during the last one (which investors remember the most).

The average gain in the first month following the start of an easing cycle is 2.99%, and the average gain during entire rate cut periods is 15.33%.

click to enlarge

Comments

[TKL:]

Thanks for the handy chart. Each episode has its own set of circumstances. Which most resembles the present? Probably 1995 and 1998 (see www.fxstreet.com/funda...).

There is a danger that we could be facing the 1989-92 scenario. Perhaps danger seems like the wrong word, considering the roughly 30% return over three years, but remember, those three years span the 1990 recession, which left the market wallowing in negative territory a year and a half after the rate cuts began.

There does not seem to be much reason to hope for the wild gains of 1974-76 or 1984-86. The former was set up by the market's preceding loss of nearly 50% from 1973-74. The latter represents the secular shift out of hyperinflation, with attendant declines in bond yields. Nothing so momentous is happening now.

2007 Sep 18 03:23 PM

[fakuretarde...:]

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2007 Sep 21 06:49 PM