1. Interest rate cuts after the dot-com bubble burst in 2001
Background: The Internet bubble burst in 2000, and U.S. stocks (especially technology stocks) fell sharply. In order to cope with the risk of economic recession, the Federal Reserve began to cut interest rates several times from January 2001.
· US stock performance: Despite the Federal Reserve’s multiple rate cuts throughout 2001, the US stock market’s performance was still relatively weak as the market was still digesting the impact of the bursting of the Internet bubble. The Nasdaq Composite Index (mainly representing technology stocks) fell sharply during this period. However, the rate cuts provided liquidity support to the market, and the US stock market eventually rebounded strongly when the economy recovered in 2003.
2. Rate cuts during the 2008 global financial crisis
Background: The subprime mortgage crisis triggered a global financial crisis. The Federal Reserve began to gradually cut interest rates in September 2007, and significantly lowered interest rates in 2008, while launching a quantitative easing policy.
· US stock performance: Despite the Federal Reserve's extremely loose monetary policy, US stocks still experienced a sharp decline in 2008, with the S&P 500 index falling more than 30% throughout 2008. However, interest rate cuts and quantitative easing policies helped the market bottom out in March 2009 and started a bull market that lasted for many years.
3. The Federal Reserve’s preventive rate cut in 2019
· Background: The global economic growth slowed down in 2019, and the uncertainty of the Sino-US trade war caused market volatility. The Federal Reserve cut interest rates three times in 2019, mainly to prevent economic recession.
· Performance of U.S. stocks: The Fed’s interest rate cuts helped stabilize market sentiment, with both the S&P 500 and the Dow Jones Industrial Average hitting record highs in 2019. The interest rate cuts increased market liquidity and boosted investor confidence, driving the U.S. stock market upward.
4. Emergency rate cuts during the 2020 COVID-19 outbreak
Background: As the COVID-19 pandemic spread rapidly around the world, the Federal Reserve made two emergency rate cuts in March 2020, lowering interest rates to near zero and launching large-scale quantitative easing and rescue programs.
· US stock performance: In the initial stage of March 2020, despite the Fed's emergency rate cut, US stocks still experienced a sharp sell-off, with the S&P 500 and Dow Jones indexes falling by about 30% from their highs respectively. However, due to the extremely loose monetary and fiscal policies adopted by the Federal Reserve and the US government, US stocks rebounded quickly in the short term and hit a record high in the second half of the year, especially technology stocks leading the market upward.
Except for the first and second times, the second times in 2019 and 2020 were both very successful. So which round of interest rate cuts is this more similar to? It must be those in 2019 and 20, because the subprime mortgage crises in 2001 and 2008 were both super serious economic crisis events.
Therefore, for this round of interest rate cut cycle, if we are to follow a similar path, then we must refer to the two times in 2019 and 2020. The figure below shows the trend of the U.S. stock market in 2019 and 2020. It can be seen that the decline was basically stopped after 3-5 weeks and the rise began immediately. Therefore, although there is an economic crisis in this wave, it is also accumulated during the period of yq, and it was basically released before. Therefore, the next plot will definitely not be bad. Some people may say that the current new high of the U.S. stock market may fall, but a fall and a rise is a good development path. Therefore, the current route of the big pie must be rising!
