The Federal Reserve, which controls the world's financial faucet, will bring about what kind of changes to the world after this rate cut? Let's take history as a mirror and examine the performance of five major asset classes following the seven instances of rate cuts by the United States from 1982 to 2019.
1. U.S. Treasury Bonds: Yields tend to move downward
The horizontal axis of the chart below represents the time from two months before the rate cut to three months after, while the vertical axis shows the performance comparison of various assets from two months before to three months after the seven rate-cut cycles. It is evident that the yield on 10-year U.S. Treasury bonds generally maintains a downward trend. On average, the yield on 10-year U.S. Treasury bonds decreases by 20 basis points (BP) 60 days after the rate cut.
2. U.S. Dollar: Direction unclear
Whether the U.S. dollar will rise or fall before and after the rate cut is not absolutely correlated, as seen from the chart. During the seven cycles, the probability of the U.S. Dollar Index rising or falling within 1-3 months after the rate cut is roughly equal.
3. U.S. Stocks: Temporary pause in the upward trend
The upward trend of U.S. stocks may "stall" around the time of the first rate cut, but it usually resumes its upward trajectory 2-3 months after the rate cut, with the exception of the 2001 internet bubble and the 2008 subprime mortgage crisis. That is to say, barring any special events, U.S. stocks will rise 2-3 months after the first rate cut.
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In terms of style, if it is not a market condition similar to the 2001 internet crisis, the probability of technology growth stocks outperforming cyclical value stocks is relatively high.
4. Gold: Rises first, then consolidates.
The probability of gold prices rising before a rate cut is relatively high, but the trend after the rate cut is unclear. From two months before the first rate cut to the day before the rate cut, the spot price of gold has risen four times, with an average increase of 1.8%.5. Crude Oil: More Likely to Decline
The probability of crude oil prices falling after an interest rate cut is relatively high. From three months after the rate cut to the day before the cut, there have been five instances of declines, with both the average and median drop being 6.0%. The decline in oil prices can mainly be attributed to economic weakness and concerns about insufficient demand.
Overall, after the first interest rate cut, the volatility of most asset prices tends to increase. The yields on U.S. Treasury bonds and crude oil are likely to fall, while the U.S. dollar's fluctuations follow no clear pattern. The U.S. stock market initially remains flat and then rises, and gold is expected to remain stable. Have you grasped these patterns?