S&P500 crashing. Will it benefit from a September RATE CUT??

8 Ağu

The S&P500 index (SPX, illustrated by the blue trend-line) has been under heavy selling pressure in the past 3 weeks and a September Fed Rate Cut is already priced at 95%. But will the index benefit from such action?

A detailed look into the past 35 years of recorded Yield Curve (US10Y-US02Y) price action, shows that when it flattens and rebounds, the Fed steps in and cuts the interest rates (orange trend-line). As you see on that 1M chart though, this hasn't always been beneficial for stocks as especially for September 2007 and January 2001, it took place parallel to the Housing and Dotcom Crises.

The Inflation Rate (black trend-line) however seems to be at a low level that is consistent with market bottoms and not tops. As a result, it appears that it is more likely we are in a curve reversal that is consistent with bull trend continuation for the stock market, after short-term corrections, in our opinion either post June 2019 (ignore the COVID crash, which is a once in 100 years non-technical event) or pre-2000.

So to answer the original question, we believe there are more probabilities that a September rate cut will do more good to the stock market than harm.

Just as a side-note, based on this chart, our sentiment is that the current AI-led rally will be similar to the internet rally of the mid-90s that eventually led to the Dotcom crash of 2000.

Your thoughts?

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