History shows that emergency interest rate cuts precede a bear market.
WHO issues new guidance regarding the mortality rate of COVID-19 (coronavirus).
A new study estimates that the virus could easily halve economic growth this year.
The Federal Reserve shocked market participants on Tuesday after announcing an aggressive 50-point rate cut. The move was intended to shore up liquidity in an effort to combat the economic impact of the coronavirus.
Unfortunately, the big rate reduction did not drive the Dow Jones Industrial Average higher as expected. On the contrary, the index ended the trading day down nearly 3% despite the Fed’s intervention. This indicates that the market is pricing in factors that cannot be solved by loose monetary policies.
Big Rate Cuts Often Foretell Stock Market Collapse
Over the last two decades, we’ve seen six instances where the Fed reduced rates by 50 basis points or higher. Every single one of them preceded a bear market.
Since 2001, the Fed has been introducing emergency rate cuts of 50 basis points or higher in an attempt to avert a crisis. History tells us that this strategy doesn’t work. If anything, it’s a sign that the stock market is headed for a monumental collapse.