The Market's Wish

The Market's Wish

February 16, 2023

Key Takeaway

The market is wishing that the Fed will begin to lower rates later this year. However, as the old adage goes, be careful what you wish for! 

During the two major bear markets of recent past (2000 & 2008), in both instances, the market didn't experience it's big percentage drop until after the Fed began to lower rates which normalized the yield curve. The green up arrow below illustrates the Fed lowering the Fed funds rate, and the red down arrow illustrates the ensuing market drop of the S&P 500. If the Fed is lowering rates, it's generally because the market is experiencing some stresses and slow downs that if not curtailed, could get out of control. Currently the yield curve is more inverted than both of those previous examples combined. It would be foolish to think that a recession is not on the horizon. The question is how severe will it be and can the Fed indeed orchestrate a "soft landing" to avoid a deep recession...? 

Keep in mind though that you can't wait for an "all clear" signal or for the market to "feel better".  As previously mentioned, the market always climbs a "wall of worry´╗┐" and prices in future events anywhere from 3-6 months before they occur. Is the market pricing in a recovery now? Possibly... I do think there will be short and mid term opportunities offered to us throughout this year, but I also feel like some caution will be warranted as we journey through the volatility and technical swings to come.

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