Warning: A Fed Rate Cut Is Bad News for Stocks

Investors are buying into the idea of a cyclical recovery, the idea that the Federal Reserve “pulled off” a soft landing. The market’s anticipation of such a recovery is largely based on the assumption that the Fed will loosen monetary policy at the exact right time before some major credit event takes place. This would entail lowering interest rates, which stimulate economic growth by making borrowing cheaper. This is a double-edged sword. On one hand, it can stimulate economic expansion. On the other hand, it can also lead to inflation and financial instability. Most importantly, stocks tend to suffer meaningful declines AFTER…