Source: Chart from Tim Duy Tweet
Every downturn is idiosyncratic, with one commonality: They all come after a period of Fed rate hikes – Tim Duy, Twitter, September 17 6:03pm PST
History doesn’t repeat itself but it often rhymes – Mark Twain
17 years ago – on September 18, 2007 – the Fed preemptively cut the Fed Funds Rate by 50 basis points even though the stock market was essentially at all times highs. The S&P surged almost 3% that day.
Three weeks later – on Thursday October 11, 2007 – the S&P surged to new all time highs early in the session before a nasty reversal (“Yowza! Market Drops Precipitously For No Apparent Reason”, Top Gun Financial, October 11, 2007). That marked the top for that cycle as the crashing housing market subsequently caused The Great Recession.
Back then I was a 30 year old rookie in my first year managing money professionally. I had dropped out of the Phd Philosophy program at UC Davis to start Top Gun to profit from the popping of the housing bubble which I correctly believed would infect the entire economy.
17 years later to the day the Fed is likely to make a similar preventative 50 basis point cut. I expect the market to rally hard to new all time highs in reaction, pulling all marginal buyers into the market – but once again it will be the last hurrah. Get your popcorn ready….