The received wisdom for a while has been that the end of this year will be tough for investors. Monster-sized tech stocks are already expensive by any sensible measure and the intense sensitivity across markets to every even minor hit and miss in the economic data point to an extended period of uncomfortable volatility. Plus, the US is doing that election thing again in November with, let’s say, potentially extreme outcomes.
But the US Federal Reserve scored a master stroke this month in hacking back interest rates hard without triggering alarm that it is fending off a recession. Since then, the mood has shifted: what if risky assets do not melt down, nor even stumble, but melt up?
The historical record paints a strong case for this. US interest rate cuts of any size generally coincide with declines in stocks and other risky markets if they come in or around a recession, but not if the economy is humming along reasonably nicely, as it appears to be now.