Will The Fed Rate Cut Trigger a Stock Market Surge? (Let Me Show You)

Summary

This video explores the historical impact of Federal Reserve interest rate cuts on stock market performance. It reveals that after 22 rate cut cycles, stocks rose 16 times within 12 months post-pivot, averaging an 11% increase. Over longer periods, the market's likelihood of growth increases, with an 89% average return after five years. The video advises against panic selling during market crashes and suggests a systematic buying approach. It underscores the importance of a long-term investment horizon, highlighting the stock market's tendency to rise over time, influenced by factors like inflation.

Takeaways

• 📉 Historically, after the Federal Reserve begins to cut interest rates, the stock market has been up 16 out of 22 times within 12 months.
• 📈 On average, 12 months after the Fed pivots, the stock market has seen an 11% increase.
• 📊 Over a 3-year period following the initial rate cut, the market is less likely to be down, with the probability decreasing further over a 5-year period.
• 💹 The average return after 5 years is 89%, with a median return of 97%, indicating significant long-term gains.
• 🔍 The reason for the Fed's rate cut is crucial; the market performs better when cuts are not in response to a recession.
• 🚫 Short-term market behavior following rate cuts is unpredictable, with the initial weeks being particularly volatile.
• 🏦 Investors should avoid panic selling during market downturns, as historical data suggests markets recover and rise in the long term.
• 💸 In the event of a market crash, consider buying the dip, but do so methodically through dollar-cost averaging to mitigate risk.
• ⏳ Patience is key in stock market investments; waiting out short-term volatility can lead to long-term gains.
• 💡 The stock market, like other assets, tends to rise over the long term due to inflation and financial asset inflation.

Q & A

What does the term 'FED pivot' refer to in the context of the script?

The 'FED pivot' refers to the Federal Reserve's decision to start cutting interest rates, which is often a shift from a previous policy of raising rates.

According to the script, what has been the historical performance of the stock market 12 months after the FED begins to cut interest rates?

Historically, the stock market has been up 16 out of 22 times within 12 months after the FED begins to cut interest rates, indicating a tendency for the market to rise after such a pivot.

What does the script suggest about the average return of the stock market 12 months after the FED pivots?

The script suggests that on average, the stock market is up 11% 12 months after the FED pivots.

How does the script differentiate between the short-term and long-term effects of the FED's interest rate cuts on the stock market?

The script indicates that in the short term, especially within the first few weeks or months after the initial rate cut, the market can be very volatile and unpredictable. However, in the long term, over three to five years, the market is more likely to be up.

What is the average return of the S&P 500 when the FED pivots with and without a recession in the next 12 months?

The script does not provide specific numbers for the average return of the S&P 500 with or without a recession following the FED's pivot, but it does suggest that the stock market performs better when there is no recession.

What advice does the script offer regarding investment strategy if the stock market crashes?

The script advises against panic selling if the stock market crashes and instead suggests buying the dip systematically over time, using a dollar-cost averaging approach.

Why is it suggested not to invest money that will be needed in the short term in the stock market according to the script?

The script suggests not investing short-term needed money in the stock market because the market can be unpredictable in the short term, and there is a risk of locking in losses if the market is down when the money is needed.

What is the script's perspective on the long-term trend of the stock market and why?

The script's perspective is that the stock market has a long-term upward trend, largely due to financial asset inflation and the historical performance of the market over the past 100 years.

How does the script compare the historical prices of homes, cars, and horses to the stock market's performance?

The script uses the historical prices of homes, cars, and horses to illustrate the point that, like these commodities, the stock market has generally appreciated in value over time and is unlikely to revert to historical price levels.

What is the script's final message to the audience regarding the stock market?

The final message is to not panic sell during market crashes, to invest systematically, and to have patience, as the stock market historically tends to go up over the long term.