It seems like most people here think that once the fed cuts rates, that's going to be extremely bullish for stocks…something about risk free rate, trillions in money markets, nowhere else to put cash to work, yadda yadda.
But if history tells us anything it's that interest rate cuts are usually met with a bear market. Why would anyone think that it could be different this time?
Is there a scenario where the Fed cuts rates this year and money doesn’t pour into the stock market?
byu/TheRealLBJ inwallstreetbets
Posted by TheRealLBJ
48 Comments
If rates are cut and the market tanks – ask yourself what was the reason they cut rates to begin with? Was it… plummeting gdp? A collapse in the housing market? Dangerous deflation?
Or did they just cut rates for fun and the market tanked because of it?
Wave of bank failures and credit seizing up could do it
I personally think that rate cuts = yield curve steeper = generally bad for stonks
But I wouldn’t say the market crashes… maybe defensives such as KO get more hype rather than high flying tech 🤷♂️
Housing market.
It’s largely inflated thanks to low supply. Banks are holding a ton of 2~3% mortgages and are salivating to move those people to a higher rate and slide another at a higher rate. They’re stroking it to the projected earnings.
If you guys look into history when Rate cuts happen, Market takes a correction.
https://www.forbes.com/advisor/investing/fed-funds-rate-history/
I’m gonna be honest, iddk where the “Rate cuts = good” garbage came from but it’s always the dumb new to market investors/traders that always parade that.
Feds has never cut rates when the economy was doing fine. Every rate cut happened due to catastrophic economic events that would have took the entire economy down if Feds didn’t immediately jumped in and do everything possible to stop it, rate cuts was one of them.
WW3
I think rate cuts will help tech overall and certain stocks like UPST heavily, but more than anything, we need to companies generating new revenues or saving costs through the introduction of AI… if all that AI spending doesn’t translate to results, I dont think rate cuts will be much of a catalyst to the overall market. Too much money has already flowed in under that expectation, imo.
No. Rates were never going to be cut this year. Anyone who believed that was a fool. More rate hikes are more likely.
The economy tanks -> fed panics and cuts rates -> economy continues to tank -> market crashes
They will wait until after the election, then be forces to cut and everyone will see the damage that has been done
Just remember, they don’t even know exactly what they’re doing. But no matter what, “they” will be set ✅
Rates will only be cut if Main Street is freaking out about something. Pending war, pandemic, social unrest, collapse of regional banks/CRE market, someone pronounces himself king, etc.
Edit: Other than that, “higher for longer”.
Quit trying to find a reason to be a bear
Yes .. what’ll happen is I’ll probably buy calls expecting a rally when it happens which will cause the downfall
The difference is this: the significance of rate cuts, or the “pivot”, is the anticipation of a return to easy money. That means debt that is extremely cheap to borrow, interest rates back down to the 0% neighborhood, or ZIRP.
This is achieved only by QE, or quantitative easing, where the fed creates reserves out of thin air to buy bonds onto its balance sheet from the wall street banks. Only the fed has enough firepower, or theoretically unlimited money, to buy enough bonds to literally push interest rates down to near 0%
This is what the markets are anticipating. If the markets get this, the markets will pump. Perhaps initially the markets may have some fear and stocks will sell off on the news of rate cuts. Maybe something will “break” that initiates fed rate cuts. But as long as interest rates get taken back to near 0% the markets will pump.
What’s the alternative? Fed may cut rates but won’t take them down to the zero bound. Maybe the fed gives forward guidance that they will only cut a certain number of times and their target rate will be around 3% for the fed funds.
In such a scenario where the markets do not get their easy money dream, where interest rates don’t get taken all the way down to 0%, there is a high high likelihood that stocks will crater, or at the very least not do as well as people are hoping.
If the fed isnt going to print money to buy bonds, where is the demand fir bonds going to come from? Who’s gonna buy bonds? The only reason people are buying bonds is if they know the fed is gonna be coming behind them with a firehouse of printed cash to buy bonds. If the fed isn’t going to be doing that, then I could see a scenario where long duration bonds actually sell off and yields go up
Fed cuts interest rates half heatedly when inflation is already high. Market will realize massive inflation is coming and the long duration bonds will selloff. This woild cause the stock markets to absolutely crater.
They cut rates, everything moons. İt’s that simple
Cutting rates will send bonds up first which are at decades lows, and that’s where the money market and hedges will go first. As bonds rise, stocks sell off, this is the way
You have to understand the psychology of the built in price drivers being realized. Rate cut will likely drive a short term boost. Especially in speculative and growth stocks.
Isn’t it that with rates lower, saving accounts and bonds yield less interest, and all the conservative boomers will be incentivized to buy stocks again to get those sweet returns. So an enormous amount of capital currently sitting on the sidelines will pour into Apple and GE and VOO etc. At least that’s the theory.
The scenario is pretty simple: look at lumber and housing prices.
There’s a decent chance that rates will be >4.5-5% for far too long, and we end up in a housing led recession in 18-24 months.
That’s the scenario where rate cuts end up not leading to a stock boom because the rate sensitive stocks will tank because the worsening economy outweighs rate cuts.
That is a bear case; the other bear case is the deficit spikes next year and becomes untenable affecting the economy (but we haven’t reached that point yet and nobody knows what it would look like). The bull case is economy powers ahead and rate cuts fuel another leg up.
Rates get cut in response to shit breaking.
Rate cuts = weakening economy. My money is market goes down before or when fed starts cutting
The Fed tends to be reactive and not proactive.
They cut rates when the economy is going badly, so the cuts aren’t causing the decline, they’re trying to soften it.
It’s like asking how come sickness goes with medicine. Why? Healthy people don’t take medicine. The medicine isn’t causing the sickness, it’s the reason why you take it.
Nope. If they cut, money will pour in.
If fed cuts rates it may signal top of stocks imo
Every time the Fed cuts interest rates two or more times the market goes up. Money shifts from bonds to stocks. Usually fed is cutting rates because we’re in a recession. That’s to prime the pump.
Lol they won’t cut rates til next year hold on to your shorts. Then whichever administration is in charge after the elections can claim they did it.
Hypothetically, yes. Realistically, no.
Hypothetically, rate cuts could be a response to some unforeseen variable that substantially and negatively impacts the U.S. economy. This, however, is not realistic.
They’re going to cut rates this year, at least once, probably twice, for multiple reasons, and none of those reasons are anything that substantially and negatively impacts the U.S. economy.
Answer – Yes
Buy the rumour and sell the news.
Yeah recession.
They’ll do everything they can to keep the market running/stable until the election. I bet we see one cut in September and one in December. Data is data.
Its the opposite. Fed does first cut, market will descend into shit.
War news, presidential election, and guidance.
Seems like a sell the news kinda thing, but way larger scale.
Rates will be cut at the end of July. Every other country is starting and the US has to keep up. Spy starts surging even more then.
Cutting of rates means a recession is coming. They will only cut rates when the economy slows to a halt.
Yes, the economy sucks ass and that’s why they are cutting
Think of it this way. What would cause the fed to lower the rate when 5% isn’t a high rate historically? Fed usually lowers the rate when the economy is struggling, which is why the bear market follows the drop. Fed is mostly reactive rather than proactive.
It’s native to think that people are going to buy stocks instead of holding cash in a HYSA or CMA, when people don’t have jobs and/or their business is struggling.
It’s also native to think that a point or two cut in rate is going to suddenly boost the economy after the rate cut.
We at the point of no return
ABSOLUTELY. If the Economy visibly tanks by various metrics (defaults, waning demand, and perhaps the impact of a hurricane or two in Florida popping the already-deflating bubble there), a panicked Fed cut of a full point might scare a lot of money out of equities and into bonds and material assets.
If the Fed cuts rates because unemployment hits 20%
Haven’t some bears been circulating some charts showing how crashes happen after rate cuts?
Historically rate cuts tank markets. Different this time though. 
sell off on tech and rotate into other sectors like more consumer focused areas. rate cuts were already baked into the cake all this time, shoved into tech like a ghey bear sitting on a pineapple for fun
Shhhh it’s part of their plan to make everyone think rate cuts are a good thing.
Yep. First we plummet due to X factor (bird flu jumps to man, ww3, etc) then markets and rates crash. Everyone hesitates. Waits. Done.