The saying “don’t fight the Fed” is the popular (and misguided) notion “everyone knows” that a few consecutive Fed rate hikes are bearish, whereas falling rates are bullish. The idea is loose monetary policy leads to lots of extra liquidity and is good for stocks—but tightening sucks money from the economy and is bad for stocks. Some folks think “don’t fight the Fed” applies to the discount rate, others to the fed funds target rate, still others to short-term rates in general. All wrong!
Instead of “don’t fight the Fed,” I wish everyone knew that any market adage that says, “Always sell on this one condition, buy on that one,” is wing-nut time. (If only investing were that easy!) There is, to my knowledge, no one single indicator that works consistently and is failsafe. And if you just know that no one indicator is close to failsafe, you know this adage is bunk.

A Monetary Phenomenon

But suppose you want evidence. Consider recent history. From 2001 to 2003, the Fed steadily cut rates—while stocks tanked. If you had been obediently not fighting the Fed, you would have been nailed by a big bear market. The same was true, but worse, in the 2007 to 2009 bear market. The Fed dropped rates starting late in 2007—just as the bear market began—all the way until the target fed funds rate was down to 0 to 0.25 percent. And that was during a major bear market. Conversely, the Fed raised rates from 2004 through 2006, during a bull market.
What gives? It’s true, ...

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