Today at 17:00 Israel time - The big Jackson Hole symposium begins!
Investors are eagerly awaiting the words of the great Powell - the man whose word carries weight - and therefore:
We decided to check - what can history tell us about what happened the previous times the Fed started cutting interest rates?
First - interest rate cuts made without a recession had positive effects in the past.
Historically: since 1950 - if the US economy did not experience a recession within a year of the first interest rate cut - the S&P 500 - always rose in the 3 and 9 months that followed.
Historically: stocks then recorded positive returns for 6 and 12 months after the first interest rate cut - with one exception in 1968.
What else did we find? Since 1950, the S&P 500 index saw an average increase of 10% in the three months following the first interest rate cut - if a recession did not follow.
What do we understand? A 'soft landing' (interest rate cut without recession) is very important for the stock market!
What should we pay attention to? Unemployment! - Almost every time the Fed started cutting interest rates since 1950 - unemployment soared.
Historically, the first interest rate cuts come three months before the unemployment rate begins to rise - according to Reventure.
On average, the unemployment rate rises to ~7.5% during the Fed's interest rate cutting cycle.
Meanwhile - the Fed says it does not expect the unemployment rate to rise more than 4.1% - this figure is only 0.4% higher than the current unemployment rate (!)
So how will the market react?!
Well - it depends on factors such as:
Will they cut interest rates by 0.25 basis points or 0.50 basis points?
We're back to - 'good news is good news' - focusing on: jobs, retail sales, and GDP.
And meanwhile - all eyes are on Powell's words today, which will certainly shake the markets! (at 17:00 - Israel time)
*Link to a direct live stream where you can watch the event at 17:00 - https://www.youtube.com/live/OAHHA27td-A?si=nOJdPcLec0Ujcrl0