News

Bank of America has compiled data showing that since 1970, the Federal Reserve has initiated 12 rounds of rate cuts. These rate cuts are typically categorized into three types:

"Panic cuts": Emergency rate cuts made by the Federal Reserve in response to Wall Street crashes or credit events, such as those in 1987 and 1998.

"Soft cuts": Rate cuts by the Federal Reserve during an economic "soft landing," as seen in 1984, 1995, and 2019.

"Hard cuts": Rate cuts by the Federal Reserve during an economic "hard landing," as seen in 1973, 1974, 1980, 1981, 1989, 2001, and 2007.

Market reactions: Different types of rate cuts have varying impacts on the market. For example, in "soft cuts" scenarios, the stock market (S&P 500 index) typically rises by an average of 10% in the 6 months following the initial rate cut, while the 10-year US Treasury yield drops by 56 basis points within the same period. In contrast, in "hard cuts" scenarios, the stock market on average falls by 6% in the first 3 months, and the 10-year Treasury yield decreases by 38 basis points in the following 6 months.

Current situation: Bank of America Merrill Lynch believes there is a risk of a "hard landing" at present and advises investors to sell assets when the Federal Reserve initiates its first rate cut.

Performance of risk assets: Prior to the 12 initial rate cuts by the Federal Reserve since 1970, the average stock market increase in the 9 months leading up to the rate cut was 2%. However, in 2024, this figure stands at 32%, indicating that risk assets may have already priced in the rate cut expectations excessively.