The much-anticipated interest rate cut is about to come. In just over an hour, the decision on the rate cut will be announced, and the probability of a 50bps rate cut tonight is approaching 70%. The world economy is rapidly heading towards a rate cut cycle.

At 2 a.m. Thursday, the Federal Reserve will announce its September interest rate decision, and Fed Chairman Powell will deliver a speech at 2:30 a.m.

Looking back at history, the performance of U.S. stocks has changed significantly over the past several interest rate cuts.

The rise and fall after the interest rate cut are inconsistent. At this point, it seems meaningless to predict a 25BP or 50BP cut, and it is nonsense to predict a rise or fall after the interest rate cut.

This exposes some cruel truths. Most people want to find a sense of security in a disordered market, but most of the time the opposite happens. Don't believe financial bloggers or experts. Human thinking tends to be in a way that is beneficial to themselves, while the market is objective, disordered and irrational.

The interest rate cut in 2019: It started in a slightly weaker economic environment, faced the risk of trade friction, and was affected by political pressure. At that time, Federal Reserve Chairman Powell was under pressure from Trump when making decisions. After the interest rate cut, growth slowed but did not fall into recession. The US stock market hit a new high after a brief decline of more than half a month after the interest rate cut.

The interest rate cut in 2007: It started at a time when credit risk events were frequent, which is different from the current situation. After the interest rate cut began, the real estate bubble burst, the subprime mortgage crisis, and the United States fell into recession.

The rate cut in 1995: At that time, inflation fell from a high level and the unemployment curve was flat, which is somewhat similar to the current situation. This time the economy had a soft landing and the stock market performed well.

History always repeats itself with striking similarities, but it never repeats itself.

Here are four points to note about the interest rate cut:

First, in terms of time, it will be announced at 2 a.m. Beijing time on Thursday, which is before the opening of the second trading day after the holiday, so if you want to add US stocks, you might as well wait. After Wednesday, the situation will become clearer.

Second, the extent of the interest rate cut. Different interest rate cuts will lead to chain reactions among various investment targets and people’s expectations of market development. If the Fed wants to cut interest rates by 50BP, it must defeat the recession expectations.

Third, the dot plot released at the meeting will show the trend of future interest rate cut cycles after this decision. According to the latest expectations, the interest rate futures market is pricing in a 114bps rate cut this year, and a rate cut of more than 200bps before the end of 25 years.

Fourth, after the resolution is announced, there will be a press conference by Lao Bao to see if his eloquent tongue can reverse the situation.

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