Of 13 major Fed pivots over the past seven decades, in only five of them did the stock market bottom in advance. Here’s one big reason why the bottom doesn’t always happen before the Fed begins to reduce interest rates.
Jumping the gun is dangerous when anticipating the timing of the Fed pivot. I’m referring to the guessing game that many on Wall Street are playing, which focuses on when the U.S. Federal Reserve will stop raising rates and begin to reduce them — pivoting, in Fed speak.
Furthermore, if you date the Fed’s pivot to when it begins to reduce the pace of interest rate increases, then there would have been even fewer occasions in which the stock market hit bottom in advance. That’s particularly relevant to today’s market, since stocks have been rallying in recent weeks on the expectation/hope that the Fed at its December meeting will raise rates by 50 basis points as opposed to the anticipated 75 basis points.
Of course, this is an average, and in some cases the Dow did hit its low prior to the pivot. But these were in the minority — just five of the 13 cases.
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