Historical experience suggests that the market is likely to rise after an interest rate cut, but this doesn't guarantee a rally. This article will review historical capital market fluctuations before and after interest rate cuts. (Previous: Will Powell's August 22nd Global Central Bank Annual Meeting be dovish or hawkish? Goldman Sachs predicts three rate cuts this year, bullish on short-term US Treasuries.) (Background information: US July PPI explodes.) Bitcoin plunges to $117,000, Trump's tariffs sound inflation alarms, will the Fed cut rates again in September?) A September rate cut seems highly likely. The big question now is: will the market rally after this? Historical experience suggests a high probability, but it doesn't guarantee a rally immediately. Market intuition suggests that a rate cut is almost synonymous with a release of liquidity and a rise in asset prices. However, a look back over the past three decades reveals that the Fed's rate cuts are far more complex than they appear. Sometimes they are preventative measures to prevent future crises, and sometimes they are emergency bailouts to provide support during crises. Since 1990, the US Federal Reserve has experienced five major interest rate cut cycles, each driven by distinct economic contexts and policy motivations, resulting in distinct stock market reactions. Understanding the relationship between interest rate cuts and the market requires more than simply viewing them as "bull market triggers"; instead, a detailed analysis must be conducted within the broader context and investor sentiment at the time. A full year has passed since the last rate cut, and the market is once again focused on the September meeting. According to FedWatch data, the probability of a 25 basis point rate cut in September has reached an 83.6%. Looking back over the past year, the S&P 500 and Nasdaq Composite Index reached new all-time highs following the rate cuts, while Bitcoin also saw a surge in value. This has rekindled the market's belief that "rate cuts equal a bull market," and Coinbase even believes that loose monetary policy cycles will usher in an altcoin boom. However, is there a true link between rate cuts and market performance? This article will examine the economic and stock market performance during each of the US Federal Reserve's rate cut cycles since 1990, providing a more rational basis for assessing the onset of a bull market. Interest rate cuts and bull markets: Stock market performance during interest rate cut cycles 1990-1992: Soft landing after the Gulf War and the savings and loan crisis From 1990 to 1992, the U.S. economy suffered successive shocks from the savings and loan crisis and the Gulf War, resulting in credit tightening, a sudden slowdown in consumption and investment, and the economy quickly fell into recession.The US Federal Reserve began cutting interest rates in July 1990 and continued until September 1992, dropping the federal funds rate from 8% to 3%, launching a round of aggressive easing. Initially, the Fed observed weakening economic momentum and financial market instability, opting for a gradual easing strategy. However, Iraq's invasion of Kuwait in August, resulting in soaring oil prices, an economic downturn, and widespread market panic, forced the Fed to accelerate the pace of rate cuts. By October, with the economy weakening further and the government reaching a budget agreement to reduce the deficit, the Fed intervened again. By the end of 1990, financial system pressures intensified, but inflation eased, opening the way for even more easing. This rate cut effectively mitigated the negative impacts of the credit crunch and geopolitical crises. The US CPI rose from 121.1 points in 1989 to 141.9 points in 1993, but the year-on-year growth rate fell from 4.48% to 2.75%, bringing inflation under control. GDP growth rebounded from -0.11% in 1991 to 3.52% in 1993, putting the economy back on track. The capital market's response was even more direct. From 1990 to 1992, the easing effect of the Federal Reserve's interest rate cuts significantly boosted investor confidence, with the Dow Jones Industrial Average rising 17.5%, the S&P 500 rising 21.1%, and the tech-heavy Nasdaq surging 47.4%, becoming the strongest post-crisis recovery sector. 1995-1998: Preventing Recession and the Asian Financial Crisis. After navigating the 1994-1995 tightening cycle and successfully achieving a "soft landing," the US economy still faced the prospect of slowing growth. To avoid a recession caused by excessive tightening, the US Federal Reserve decisively shifted to easing in 1995-1996, using interest rate cuts to support the economy. This strategy proved quite successful—US GDP growth increased from 2.68% in 1995 to 3.77% in 1996, and further jumped to 4.45% in 1997, putting the economy back on an upward trajectory. However, the Asian financial crisis erupted in July 1997, sending capital markets into a state of turmoil. While US fundamentals remained strong, global uncertainty escalated sharply, and the LTCM (Long-Term Capital Management) crisis further ignited market panic. To prevent external shocks from dragging down the domestic economy, the US Federal Reserve cut interest rates three times between September and November 1998, lowering the federal funds rate from 5.From 5% to 4.75%. This round of modest rate cuts had a significant effect, maintaining economic expansion and ushering in a frenzy in the capital markets. Since the start of easing, the Dow Jones Industrial Average has more than doubled, a 100.2% gain; the S&P 500 has soared 124.7%; and, driven by the tech boom, the Nasdaq has surged 134.6%, pre-empting the subsequent dot-com bubble. 2001–2003: Recovery from the Dot-com Bubble. From 2001 to 2003, the US economy was hit by the bursting of the dot-com bubble, the September 11th terrorist attacks, and the subsequent recession, plunging the market into a deep downturn. The dot-com bust triggered a stock market crash that quickly spread to the real economy, with a sharp drop in business investment, rising unemployment, and ultimately triggering an eight-month recession. The already fragile recovery was further undermined by the September 2001 terrorist attacks, which sent financial markets and consumer confidence plummeting. To address these pressures, the US Federal Reserve launched one of the most aggressive easing policies in history over just two years. The federal funds rate was lowered from 6.5% at the beginning of 2001 to 1.75% in December of that year, and then further to 1% in June 2003, a cumulative reduction of 500 basis points. The Fed hoped to stimulate business reinvestment and consumer spending through extremely low financing costs, thereby stabilizing economic fundamentals. While this policy did prevent a more severe systemic crisis, the recovery was not without its challenges. In 2002, US real GDP growth was only 1.7%, with weak business investment and still-high unemployment, making the recovery difficult. However, as the easing policies gradually passed through, growth momentum rebounded significantly in 2003-2004, with GDP growth reaching 3.85% in 2004, and the US economy regained stability. However, the stock market's response was far less than expected. Sharp interest rate cuts failed to reverse the decline in the capital market. The three major stock indices still closed lower between 2001 and 2003: the Dow Jones Industrial Average fell 1.8%, the S&P 500 fell 13.4%, and the tech-heavy Nasdaq plummeted 12.6%. The experience of this period demonstrates that even significant monetary easing is insufficient to immediately counteract the profound impact of the bursting of a structural bubble. 2007–2009: Financial Crisis and the Zero Interest Rate Era The global financial crisis of 2007–2008 erupted, profoundly impacting the US economy and financial system.The root cause of the crisis lies in the bursting of the real estate bubble and the concentrated outbreak of subprime mortgage problems...

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