Topic #2 – History Says Buy the Fed Pause |
Following the latest FOMC rate decision to raise the US benchmark overnight interest rate by 25 bp to the 500-525 bp range, the Fed opened the door to a pause in the most aggressive tightening cycle in history. The committee dropped wording of it “anticipates” further rate increases would be needed in its policy statement language. Fed Chair Powell said “We’re closer, or maybe even there” regarding the end-point of rate increases and added: “Looking ahead, we will take a data dependent approach in determining whether additional policy firming may be appropriate”.
The question on investors minds would be how does the market perform in the months after Fed policy rate peaks and subsequently when the committee cuts rates?
Conclusion
Looking at the market performance following the last 10 Fed pauses and cuts, the S&P 500 tends to rally in the months after the Fed policy rate peaks and cuts occur.
To summarize, it appears that investors are likely correct in waiting for an end to the hikes because during such past pauses and cuts, they have been rewarded in the longer run for buying the Fed pivot.
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Featuring regular TA posts and requests to analyse specific stocksI analyze the stock market and conduct technical analysis to provide investment recommendations. I look forward to having a conversation with you in our in-house seminars and presentations to identify good risk-reward trading strategies together. I graduated from Nanyang Technological University with a Bachelor of Accountancy (Honours).