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History has shown us time and again that when the Fed pivots to cutting rates, the equity market is often on the verge of a steep decline. As we approach the next potential rate cut in September, it’s crucial to reconsider your position in the market.
Take a look at the chart above. It illustrates how the majority of market declines during bear markets have occurred after the Fed began cutting rates. This isn’t just a coincidence—it’s a pattern that has repeated across multiple decades and market cycles.
- Past Declines: After the Fed's pivot in the 1970s, the market dropped by 36% and 48%.
- 1980s: We saw a 27% decline.
- 2000s: The dot-com bubble and the Great Recession brought about drops of 51% and 58% respectively.
- Recent Years: Even in the 2020s, we've seen a 35% decline following the Fed's pivot.
The takeaway? When the Fed signals a rate cut, it’s often a sign that the economy is weakening—and the equity market is likely to follow suit.
As the Fed gears up for another potential rate cut, staying in the equity market could be more risky than rewarding. Now might be the time to start planning your exit strategy.
