After the Fed stops raising interest rates, will the US stock market rise? Not necessarily!
On average, the time between the last interest rate hike and the first rate cut by the Federal Reserve in history is 6 months.
A week ago, some banking giants in the United States announced better-than-expected results, which has since faded the optimistic sentiment. The current first-quarter earnings season can be described as mixed.
If the earnings season fails to push the S&P 500 index above the upper limit of the five-month volatility range of 3,800-4,200 points, bulls may soon begin to refocus on macroeconomic factors, especially as the market believes that the Fed has completed its rate hike and will soon begin to cut rates.
But is this idea of a Fed rate cut bringing a rebound realistic? Analysis by Wells Fargo and Evercore ISI shows that the situation is not so in the medium term.
How will US stocks perform after the end of the rate hike cycle?
Many investors believe that the Fed will state in its next statement that it is in a wait-and-see state. However, there is much debate about how long the Fed may pause before cutting rates again, which may disappoint stock investors.
Austin Pickle, a strategy analyst at Wells Fargo, said that any signs of the end of the monetary tightening cycle may be short-lived.
The chart below shows the performance of the S&P 500 index at the end of the past five rate hike cycles, as well as the trend of the index before it fell significantly afterwards.
"Pickle said.
In fact, Pickle believes that the S&P 500 index has rebounded 15% from its low point in October, largely reflecting the uncertainty of further Fed rate hikes is expected to be eliminated, "as the market refocuses on the deteriorating economic and profit reality...it is expected that the rebound of US stocks will be difficult."
Rapid rate cuts are unlikely
In addition, Julian Emanuel of Evercore ISI believes that the kind of rapid rate cuts that some people in the market hope for will only occur when a severe situation already exists.
The average interval between the Fed's last rate hike and its first rate cut is six months, as shown in the table below.
"While an interval of two months is not impossible, such action may lead to a stock market crash like that in 1987. The current banking turmoil is intensifying, just like in 1984, 1980, or 1974, when economic recession and inflation occurred simultaneously," Emanuel said.