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Posted: Analysis of market reaction to the Fed’s dovish speech
Last night, the Federal Reserve's dovish remarks aroused widespread market concern. Many predict that interest rate cuts will quickly send markets higher, but that expectation may blow your mind. Regarding the market reaction to interest rate cuts, we need to conduct an in-depth analysis of their actual impact, especially the complexity of the rate cut process.
The market generally believes that interest rate cuts will directly drive up prices and may even trigger a surge. Although this expectation is common, the actual situation may be very different from the expectation. Interest rate cuts are usually seen as a signal of market capital inflows, but their real market effects may be divided into several stages:
Pre-interest rate cut period: This is usually a period when the market performs better, because investors are more optimistic about interest rate cuts and funds begin to flow into the market.
When rate cuts are in progress: The implementation of actual rate cuts is often accompanied by short-term market declines. This is because the market has fully digested the expected benefits before the interest rate cut, and the interest rate cut itself will not have an immediate positive effect.
Post-rate cut period: Market performance may improve significantly within one to two months after a rate cut. This is because funds gradually flowed into the market after the interest rate cut, causing the increase to be more significant than during the interest rate cut period.
This time difference in capital flows is a factor that investors must seriously consider. Interest rate cuts are essentially measures to increase market liquidity, but the real rise often occurs some time after funds flow into the market, not when the rate cut is implemented.
In addition, market reactions similar to the Mentougou selling incident are also worth noting. Although the market's reaction to such events is often full of panic and speculation, in fact, the hype effect of these news in the market is limited. After repeated speculation, such events often become market noise and have little impact on the long-term trend.
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