The reason why interest rate cuts are considered a positive factor for the market is mainly based on the following in-depth analysis:
Significant improvement in liquidity
Interest rate cuts directly reduce borrowing costs, which not only makes it easier for companies to obtain financing to expand production or invest in new projects, but also encourages consumers to increase loans for consumption, such as buying houses and cars. This dual effect greatly increases the currency circulation in the market and injects strong impetus into economic activities. Increased liquidity is an important driver of market activity and economic growth, so interest rate cuts are often seen as a positive signal to boost the market.
Changes in investment behavior
When interest rate cuts occur, traditional fixed-income investments, such as bonds, become less attractive as yields fall. Rational investors will seek higher return investment channels to make up for the loss of income, which usually means funds will flow from the bond market to the stock market, real estate or other areas that may provide higher returns. This capital flow not only brings additional buying pressure to the stock market, but may also push up asset prices, further benefiting the market.
Catalytic effect of inflation expectations
Interest rate cuts are often accompanied by rising market expectations for future inflation. This is because more money pours into the market chasing limited goods and services, and increased demand naturally pushes up price levels. In order to maintain and increase value, investors may make arrangements in advance and purchase assets such as stocks and real estate to hedge against potential inflation risks. This preventive investment behavior further intensified the rising market trend and formed another important logical chain for interest rate cuts to benefit the market.
To sum up, interest rate cuts jointly act on the market through various mechanisms such as increasing market liquidity, guiding investment shifts, and stimulating inflation expectations, promoting the rise of asset prices and the acceleration of economic activities. Therefore, they are widely considered to be a major move that is good for the market. good news.
