Where will its occupancy rate reduction lead? feeder By 50 basis points? Will the stock market’s perennial party continue and accelerate? Or will the trend reverse? What happened to similar occupancy rate reductions in the past? Here is what history teaches us.
In searching for data on previous aggressive interest rate cuts, several interesting facts were found in highly specialized stock market newsletters such as “”.COPYRIGHT LETTER”, also known as D.K.L. TKL designs complex investment policies offered to its subscribers. According to TKL’s investment recommendations to its subscribers, the performance of their portfolios from 1/1/2020 to 12/31/2023 was +336%, while the S&P500 overall showed an order of +48% during the same period, as we see in the following graph. This performance gives value to the content of TKL Newsletter.
In fiscal 2023, TKL’s strategies returned +19.1% in S&P500 stocks, WTI crude oil -6.7%, natural gas +59.8%, gold -8.8% and bonds +14%. So we see that among all investment instruments and products TKL has its good and bad moments.
However, it is on the mentioned note that we focus today 2001 And inside 2007Again the central bank cut its key interest rate 0.50% And not 0.25% as usual.
As we can see in the following chart, the S&P500 has fallen -12.4% in the first twelve months since January 2001 and -30.6% in the two year total. Since September 2007, the S&P500 has fallen -18.9% over the first twelve months and -26.3% over the two years overall. Conclusion; Aggressive increases have not been associated with aggressive cuts in interest rates. But in contrast to a strong and sustained decline.
It is particularly interesting to see what happened in 2001 and 2007 in the Nasdaq Technical Index. The Nasdaq’s behavior is drawing our attention today as technology, digital economy and artificial intelligence stocks are also riding the bullseye of the stock markets today.
In 2000, the central bank’s interest rate was 6.5%. The tapering cycle opened in January 2021 with a cut of around 50 basis points and ended in June 2002 with an interest rate of 1%. During the same period, the Nasdaq fell -76%, from 5,132 points on March 10, 2000 to 1,253 on March 12, 2003.
Something similar happened in 2007. Central bank interest rate cuts resumed in earnest in September 2007, from 5.25% to end at 0% in December 2008. So even as interest rates fell, the Nasdaq fell -56%. From 2,861 units as on October 31, 2007, to 1,265 units as on March 9, 2009.
In both 2001 and 2007, the US economy was in crisis. For this reason, the central bank chose to pursue aggressive cuts in interest rates to prevent the worst.
But today, the central bank governor, in his message, said that everything is going well. He didn’t leave even the slightest hint that something was bothering him or that something might go wrong. Indeed, he asserted that the labor market is in a “solid state,” the U.S. economy is in “good shape,” growing at a “solid rate,” and “inflation is slowing.” However, “solid conditions”, or “good shape”, or “solid momentum”, or “inflation falling” do not justify the central bank’s aggressive decision to cut interest rates by 50 basis points. Are we in crisis and afraid of it?
