Trading Secrets

chapter 6

Federal Reserve’s rate-cutting cycles

Don’t fight the Federal Reserve’ is one of Wall Street’s famous mantras. The theory goes that stocks do well during interest rate-cutting cycles and less so when interest rates are on the rise. Coupled with this is the fact that the Federal Reserve is charged with keeping a watch over both economic growth and monetary conditions, making many investors believe that the US central bank has great power over the stock market. So, are investors wise in thinking like this or is there a smarter way to profit from rate-cutting cycles?

Federal Reserve rate-cutting cycles

Let’s consider how the S&P 500 Index has performed in the 13 interest rate-cutting cycles of the past 6 decades. The start of the ...