From Investing.com: 2025-01-06 20:30:00

The Federal Reserve began an easing cycle with its first rate cut in September 2024 after a long period of leaving rates at the peak level. Economists ease rates to stimulate demand and avoid recession, aiming for a “soft landing”. Past rate-cutting cycles show that equity markets typically respond well initially but may anticipate economic slowdown as the cycle progresses. Recessionary outcomes have led to negative equity performance, with severe drawdowns observed following rate cuts. Valuation metrics and Treasury yield curve behaviour can offer insights into potential outcomes for equity markets during the current easing cycle. The current cycle resembles past cases with high valuations and yield curve behaviour pointing to potential equity drawdowns and recession risks. The odds of a significant equity drawdown or recession during the current Fed easing cycle are greater than 50/50, especially if the cycle extends beyond 4 to 6 rate cuts.



Read more at Investing.com: Timing the Tipping Point for Stocks With the Fed Rate Cut Cycle