Is Fed rate cut equal to a stock market crash? These data points are surprising

Question

【Bitu】UBS recently unearthed an interesting set of data—since 1970, whenever the Federal Reserve cuts interest rates during non-recession periods, the annualized return of the S&P 500 can reach 15%.

This finding is actually quite significant. Many people hear “interest rate cut” and think the economy is doomed, but the data tells a different story: there are two types of rate cuts—emergency rate cuts and preventative rate cuts, and their effects are completely different. The former is when the economy is already in trouble and the central bank is forced to loosen policy; the latter is when the market is given some room to breathe before problems arise.

UBS’s assessment is that the macro environment early next year may still maintain this “most comfortable” state—no economic collapse, and policy is already easing. If this judgment holds, the stock market could see a decent rally.

Of course, historical data is just history, and whether this time will be an exception remains to be seen. But at least this set of figures reminds us: don’t panic and sell off immediately at the sight of a rate cut.

MEVSandwich · Accepted Answer

15% annualized return? Oh my, is this data real? It feels like every time someone says history will repeat itself, reality slaps them in the face.

I just want to know if this rate cut is truly preventative or just a show. Anyway, I'm just waiting to see.

A rate cut doesn't mean disaster, but it doesn't mean an immediate takeoff either. The most comfortable state is just hearing it sounds ridiculous.

Historical data looks good, but with variables like US debt, geopolitics, and inflation right now, it feels impossible to simply apply a formula.

Don't panic and sell; I've heard that too many times, and in the end, I still got cut 🤦.

If this judgment really holds true, that would be great. But I can't bet my entire fortune on trusting it.

AirdropATM · Answer

15% annualized return? Alright, here comes another set of arguments claiming history won't repeat itself. UBS's statement sounds comfortable, but when it comes to your own wallet, you should first assess your positions before talking.

MerkleTreeHugger · Answer

15% annualized return sounds great, but I'm more concerned about whether this time is really different. How likely is history to repeat itself?

ContractCollector · Answer

15% annualized return? Sounds good, but did UBS really get it right this time? I'm a bit skeptical.

Cutting interest rates does not equal rescuing the market. Many people haven't quite understood this logic. I think the bears are about to be proven wrong again.

Preemptive rate cuts are the right approach, but I doubt many can resist the urge to buy the dip.

Historical data looks good, but I'm worried this time might truly be an exception. It feels like this year is a bit different.

Easing the throttle doesn't mean there are no risks. Will the market at the beginning of next year be as comfortable as expected?

Don't follow the crowd into selling, but don't be overly optimistic either. I'll wait and see before making any moves.

0xInsomnia · Answer

A 15% annual return is indeed tempting, but whether rate cuts can truly bring about this effect depends on how the economic fundamentals develop.

OnChain_Detective · Answer

wait hold up... "15% annual returns when fed cuts without recession"? that's a pretty specific cherry-picked dataset tbh. let me pull the data real quick — what about the context around those cuts? survivor bias much? not saying ubs is wrong but pattern analysis suggests we're looking at a highly curated historical slice here. reminds me of typical market narratives before things go sideways ngl

CounterIndicator · Answer

15% annualized return? Sounds good, but UBS's data overlooks one issue — that's the historical average, and this time it might not be the same.

That said, preventive rate cuts are indeed different from emergency cuts, that's true. The problem is, who can tell which is which now? We only find out afterward.

Forget it, I'll just hold my assets and watch, don't let the data confuse you.

TokenSherpa · Answer

ngl the 15% number hits different when you actually examine the historical voting patterns here — empirically speaking, preventative cuts vs emergency ones tell completely different stories about market structure and governance dynamics if you will

PonziDetector · Answer

A 15% annualized return sounds good, but is UBS once again just giving retail investors false hope? They clearly explain the difference between preventive rate cuts and life-saving measures, but the question is, who can predict in advance when the easing will truly happen?

Is Fed rate cut equal to a stock market crash? These data points are surprising

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