Is a rate cut a loose monetary policy? Will it necessarily be good for risky assets? No!

Today, Shang Ge will discuss the impact of the Fed's [first interest rate cut] on the market:

The interest rate cut has a more direct impact on the pricing of the bond market (positive), and a more indirect impact on the pricing of the equity market and risk market (negative, positive after fundamentals improve). The impact on Gami lies in the degree of liquidity depletion.

By category:

A. No rate cut in September: good news is lost, bad news is added. The market will go back to where it came from.


B. September rate cut: The market will take risk aversion measures in advance. The market has already priced in a sharp retracement.


Types of interest rate cuts in September:

C1. Harvesting others - non-US economies explode: Japan, Europe, (crisis rate cuts); US stocks will rebound first after falling, and Gami assets will fall violently, but after liquidity is restored, it will become a risk hedging tool in economic crisis regions and will take off first;

The Fed may not necessarily exit QT and implement QE while cutting interest rates, and the positive impact on risky assets will not be as strong as the C2 event.

C2. Save the market itself - the US economy is in recession (crisis rate cut): US stocks will collapse, and Jamie's assets will fall violently, but after liquidity is restored, it will become a risk hedging tool for areas where economic crises occur and will take off first;

The Fed’s loose policy will usher in interest rate cuts + QE. Logically, the market will form two bottoms: the macro policy bottom and the market bottom;

After the July non-farm unemployment rate data reinforced the crisis pricing: the U.S. stock market plummeted, the Japanese stock market and the South Korean stock market circuit breakers, and the subsequent U.S. economic data and the Fed's guidance on expectations weakened recession expectations; of course, the Fed has its own position to intervene in expectation guidance, and admitting a recession is to admit the failure of the Fed's monetary policy.

C3. Save the city from collapse - the major economies have not experienced a recession, but the US is about to go into recession, so it has to cut interest rates. Giving up on reaping the benefits of others is not out of mercy (defensive rate cut): US stocks have fallen moderately, and the probability of an independent trend in crypto assets is higher.

Event A is a low-probability event, as can be seen from the Democratic Party's transfer and selling of sugar oranges. Because the interest rate cut before the big X result is positive, the negative is in the opposition.

Unless a ghost story happens: US economic data is so good that the Fed feels it has done its job again and will not stop maintaining high interest rates until a major non-US economy collapses;

Event B is an inevitable event and will also be the market's high-weight pricing logic before the interest rate cut.

Class C events cannot be accurately predicted, but in history, the Federal Reserve has only had two soft landings in its eight major tightening cycles, which means that from a statistical point of view, the probability of C3 is only 25%. However, the occurrence of Class C events corresponds to the release of short-term risks in the U.S. stock market.

Strategy: A gentleman does not stand under a dangerous wall.

Counting from the low point of the market price after the rate cut, the Fed's rate cut has a positive impact on the long-term price increase, ranked as follows: C3<C1<C2

Note: The above qualitative logic is limited to [the first interest rate cut by the Federal Reserve] and is a static deduction. It does not include the pricing impact of other major events: such as trade conflicts, geopolitical conflicts, the US election, and Japan's interest rate hikes.

P.S：

The original version of this article was published on the Weibo account of the same name and has been censored. The current version has some optimized details, but the core logic remains unchanged.

The above information is for communication and sharing only and is not intended as investment advice.