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Yes, they do send stocks higher. But the catch is most of the "big boys" are generally a few steps ahead of the FED. This means most of the moves from the interest rate cuts are already priced in before the FED officially does it. If you look at the stock market moves a few months ahead of the actual cut, you can see stocks moving higher.
@@henrythegreatamerican8136 It's not as if this is insider information. The bond market can be analyzed to infer whether and how much the market is predicting the target short-term interest rate will change. Some financial publications will even tell you about this result.
On one hand that is unquestionably true. On the other, stock like Tesla go up 50%, down 50% and up 50% again in a span of one year. It may just be that the algorithms have priced in human stupidity, and at this point are just basically farming it at scale. Interesting times.
So basically, semi-strong market theory on rate cut announcement but there can be a sudden shock if Fed decrease the interest rate by 50 basis point. Very unlikely though.
markets: because emergent price discovery active investing: because tiktokers have mysterious knowledge that the market lacks, even though they are also broadcasting that information on social media
Most things that makes stocks go higher works this way: people believe the thing will make the stock go higher so they make the stock go higher by buying it. That's until the next quarter report when people decides to follow the profit instead
Or more demand in the stock market. If all the Americans save and invest >20% income like Asian Americans do, the flood of money into the stocks and bonds would drive up the prices alot.
Those stock/bond certificates were a great throwback to your older animated content - with the sound effect to boot! Pleasant additions to a wonderful video, thank you Mr. Bagel.
Relevant today. Rates cut by .25, but stocks tanked drastically moments later. It’s not just the cut or rise by itself, but the context behind the change.
Define "meaningful conclusions" in this context. This is not a model; Richard is not predicting how this market will respond. He's illustrating different ways markets _can_ respond.
Wait a second... I'm pretty sure the multiple R correlation on the regression is bounded between 0 and 1, not -1 and 1, so it is never negative. The model coefficient on the effective fed rate is negative, so the relationship between the effective fed rate and the S&P 500 is in the expected (negative) direction.
@@ThePlainBagel Thanks for the reply! For those viewers who don't spend their working days interpreting regression results, the larger point in the video is still valid. Notice that the R-Squared statistic indicates that only roughly 20% in the variation in the S&P 500 is explained by the fed rate. Richard is quite right that the substantially larger proportion of the variation (80%) is likely explained by other macro-economic forces.
Nerdy answer - the R value is bounded between -1 and 1 and indicates the quality of the correlation and whether it’s a positive or negative correlation. The often more reported R squared value is purely a measure of the quality of the correlation (better so than the R value alone) and is bound between 0 and 1.
@@carterwgtx The "R-value" (Pearson's rho) ranges from -1 to 1, but that's not what we're talking about here. The multiple R value from a regression (technically, the coefficient of multiple correlation) takes on values between 0 and 1 and only indicates the degree of joint correlation, not the direction. Edit: Conflating the multiple correlation with the standard correlation is the same mistake now fixed in the video. This is a very easy mistake to make.
@@DarkoFitCoach We've just had massive inflation, inflation is still about 2%, we have mass immigration, low housing supply, high food prices, high energy costs, etc. If the 1970s haven't shown you yet, excessive inflation is the worse possible outcome in an economy because it causes both a decrease in consumer spending as well as depreciation of investment assets, even if the price stays the same. If prices of everything increased 10%, but businesses only report a gain of 5%, they've effectively become almost 5% less profitable.
@pomp4401 youre uneducated. I doubt you even know that transactions stop when mining stops, thus btc is not money or currency. Lmao at you. Keep buying into a pyramid scheme though, you might be able to trick other fools.
I think the context in which rate cut happens makes a big difference, like after a crisis if rate cut happens, it is saving measure for the economy whereas after periods of high inflation, rates cuts will be perceived differently
It actually lowers my returns instantly due to currency volatility decreasing the value of my dollar-denominated positions as compared to the euros I use in my life.
I remmeber a PM doing a presentation for us, simply put the discount rate goes down so according to any valuation model the Valuation should by default go up if interest rates are used as cost of capital
I agree with most of what you’ve said except that last part. The cost of capital (WACC) ≠ interest rate. The Fed funds rate is used as part of the WACC calculation. An increase or decrease in the federal funds rate affects a company's WACC because the risk-free rate is an essential factor in calculating the cost of capital. The interest rate paid by the firm equals the risk-free rate plus the default premium for the firm.
In your experiment, I was reminded of PB's Chart Crimes video. If you just looked at the data that you crunched at first glance, the returns average to the market. But you spend the next 3 -5 minutes explaining the flaws in the approach like the lack of data points makes it hard to draw conclusions with any degree of accuracy for forecasting. As a bagel channel that manages degenerate retail investor's expectations, I appreciate you're approach to market education.
I was just about to comment about the why a rate cut is made matters and then you bring it up! Superb. Indeed, a small cut can be good, but a series of aggressive cut can mean panic, that something is seriously broken
It’s about equity risk premium. When corporate earnings are too close to inflation you don’t have a ton of room to cut. If you run the place correctly increasing rates takes out the trash and improves overall earnings ratios, giving you room to cut later. But we never did that. We weren’t strict enough and non-profitable vapor ware and overcapitalized fueled speculation still dominates the economy. If you do the math all of the returns in equities since the pandemic have been about the decline in the value of the dollar not in the earnings or production of the enterprise increasing. Basically a lot of poorly run enterprises still need to be eliminated to properly prune the tree so it can be beautifully grown using additional money supply. Till then it’ll cost you 2% inflation to print your way to 1% real growth. Which has been the issue since 2018 or so. We are not able to effectively deploy all the capital at the speed it is being created.
I don't really like that the Excel starts on the day of the rate cut announcement. In all likelihood, stock markets begin to price in rate cuts way earlier since they anticipate the announcement. The FED has a history of giving the people what they expect (of course, the expectations are formed by the FED via speeches, protocols, and previous actions, so it's not one-sided). So I would rather start to look at stock movements beginning at maybe 1-6 months before announcement of rate cuts.
A couple of technical points. First, it might be useful in your notes to refer to the data set you were using. Second, you explain why you use the dates that you do, and I think it was appropriate for the question that you were trying to answer. However, given where we are at today, I have found the data from the 1970's to be enormously useful. Thus, I usually start my analysis with 1970 data. Otherwise, really like the work that you are doing and growing up in MIchigan, I always try to support my neighbors.
Whether it’s TikTok Finfluencers or hedge fund aficionados, Richard is always able to explain how there is no magic bullet to finances and it’s more complicated than most of us want to believe. p.s. Loved the Excel breakdown. Would be interesting to see more of your Excel witchcraft
Before watching the video, my best guess is that markets would probably drop during periods post rate-cuts because the rate cuts themselves would generally be done to stimulate an economy in a not great state - that combined with the fact that the rate cuts even in theory should have a have a bit of a time-lag before their effects can be felt.
Though one doesn't know for sure, the 30 to 120 day period before the rate cuts start will see the market's anticipation of the cut. It would be helpful to see a spreadsheet start date around 90 days prior to your current one.
You should apply standard error margins to your historical data to see if there is even a statistically significant correlation. The was a lot of variation in you small data set. It may just be that the average is too random to be significant.
Great video. Once rate cuts are announced, they temporarily go up higher. But the cuts are already priced in, in result “lost their luster” BECAUSE although rates are getting cut. They’re not getting cut in a faster pace. Therefore, Sinking the economy as rates go lower
Since you can empirically prove that companies tend to use cheap credits to buy back shares lower interest rates can have a rather big effect on returns.
so it's like regression to the mean after a praise/criticism; paradox of seeing better results after a criticism and worse after a praise (only because these actions came at specific low/high points of the average outcome) so basically you do a rate cut at a low to get back to the average, whilst in the selected timeframe it looks like stonks
This content is superb. Educative, with data to illustrate the thesis that things are unpredictable after all, explained in simple terms and shortly. With some hilarious transitions. Thank you for creating this.
Excellent video on a really interesting topic! I really enjoyed seeing ALL the numbers shown in a table format. Media and journalists these days are so quick to jump on a single arbitrary number and craft a narrative around that. It’s refreshing to see the entire dataset. Informative analysis and explanations as usual too. Thank you Richard! If it’s not too much to ask, I’ve got a suggestion for your next video: Japan’s carry trade. What it is, how it works, and how Japan’s recent increase to their interest rate will impact the JPN/US carry trade / stock market / economy accordingly.
I love how I watch every Richard´s video knowing that in the end all that matters is investing in the long term, and still i´m excited to watch the next video haha
It is the expectation of lower rates that cause stocks to rise before the announcement as we see they have already been rising before the one expected in Sept. So essentially it is already baked into the cake, but lowering rates also have the effect of preventing drops in stock prices in the future and preventing a hard landing/recession. all else being equal, since many events that cause the market to drop are not predictable under control of the Fed.
u should find a way to put the Ampersand into the bagel so the plain is right above the bagel would look waayyy cooler otherwise good video ty for sharing.
Aswath Damodaran (sp?) has a theory that the economy drives the fed funds rate vs the other way around. I think if you overlay the FFR over inflation I want to say inflation is the leading indicator.
12:25 is a great point, and I would suggest that perhaps what rate cuts do is slow the decline in markets more than leading to a massive surge. Absent a rate (or when the market thinks there will be one but there isn't-see the last 60 days), the decline might have been worse.
Okay so here's what I think 1) The one-day and one-month calculations are a little too short-term to assess the impact of rate cuts on the markets. 2) The tricky thing, however, is that the one-year timeframe is a little long as, just like you said, most expansionary campaigns don't last more than a year. So before the end of the campaign (which usually coincides with the end of the expansionary year) markets have already priced in rate hikes resulting in prices scraping a significant amount off its earlier gains.
More dollars is more investment short term. The hard part is knowing if the correction works because it doesn't inherently force positive growth #, and a correction doesn't always result in negative growth numbers. Ideally this is how countercyclical fiscal policy works in theory. You want lower highs and higher lows, smoothing out the economy and as boring of a stock market as possible. I think the stock market lags a bit with actual growth in the economy. The effect isn't instantaneous. The announcement is sometimes a small drop of water into the bigger bucket of inputs for the daily price. One can't know what the alternate timeline is of what the prices would be if the opposite policy were enacted.
The market 100% tries to factor in rate cuts so you'd need to somehow try to see when the market expected a rate cut and plot from there which would be hard. On the advice to stick to long-term, while I agree, asterisk I wouldn't put in money while the market is obviously inflated and in a bubble. I also feel tax rates are going to have to eventually rise so might be worth pulling out your gains in a bubble with historically low tax rates but that's up to individual factors.
Regarding the discount rates, don’t forget that some smart market participants may use expected real risk free rates, E(r_Tbill - r_inflation). It’s very possible that the ERRFR has been assessed as negative for this past bull run (inflation exceeding T bill rates), and as people start to see cracks in the economy the ERRFR may revert to a positive value, causing more significant discounting of cashflows as well as reduced revenue expectations and other effects that would follow a weak economy
Something to be aware of, the stock market is a prediction market, this means that some people will start buying more stocks as soon as a rate cut is suspected or announced, which means before the rate cut actually happens it begins to be "priced into" the stocks, even if on a small scale that capital will not be captured in the up swing when we look at the actual rate cut day.
Could you do a video on impact investing for climate change? So far the best I've come up with is the GRID etf but maybe a discussion of if buying certain stocks/etfs as an individual investor actually helps those companies/sectors. I want to divest from fossil fuels but the problem I ran into was that index funds/etfs that exclude fossil fuel companies are very heavy on US tech stocks like google and meta and i'm not sure how much more ethical tech companies are than oil companies at this point. don't worry, i'm mainly in target date funds and the s&p 500, but i'd like to green my portfolio going forward and it's been difficult to find good information on the topic.
If I had to make a bet: The short term "pop" will be more pronounced this time because of how many inexperienced speculators are in the market right now. Richard is right--there are not enough data points to make robust conclusions. But now, more than ever before, we have retail investors trading based on sentiment and story. I'm staying out of the casino. But I wouldn't be surprised if we see some serious volatility when a rate cut campaign begins.
your video such amazing, could you please explain more about the technic of your strategy if you have another video that explain your technic. Thanks in advance
Rate Cuts do increase asset prices for several reasons 1) rate cuts leads to investors not buying bonds and instead buying stocks and real estate chasing returns 2) rate cuts leads to more hedge funds and banks buying more stocks/assets on leverage at higher prices. best example is house prices driven up by lower mortgage rates. same thing happens to stocks. 3) rate cuts leads to carry trades and companies doing similar more trades 4) rate cuts leads to money creation due to how our debt based money is created by banks being only limited by affordability, which is directly affected by the interest rates on those debts the rate cuts of 2008 and 2021 covid led to the mother of all asset stock bubbles. but even rate cuts won't fix a negative territory completely broken economy where the public have no money and stocks values are saturated for next 30 years as if rates were 0. As shown by japan. the only solution for that is a massive wealth redistribution from rich to the masses. which rich refuse to do.
At the beginning, you say that for your sponsor there is 3 day free trial, but the text says 30 days free trial. Which one is correct? (Not that I will try it 🙈🙈)
29:26 I think one aspect with this data, is that this is more related to times in which there was likely a recession that caused slowdowns in the American economy in which this is the reason why returns were lower.
I'd be curious to see the valuations (maybe use trailing P/E) of the S&P500 and Russell 2000 at the beginning of each rate cutting campaign. Does it matter what valuation we're starting from?
people expectations /perception base on past results to actions makes stocks goes up when rate cuts happen sometimes stocks goes down because of profit taking
Is the bond market more directly correlated? I'm curious what the numbers in this spreadsheet would look like when using bond index benchmarks rather than stock index benchmarks
Bonds have a very direct relationship to interest rates, I debated discussing it but you really wouldn’t need to dive that deep to see the negative correlation
Historically, that's been the case, but we are in different times. 70% of my securities are bullish today, but 10% are consolidating, and 20% have dropped today...
I wonder about the excess returns when you substract the market returns after these interventions by the average returns from the same months where no interventions took place.
Thank you for sharing your analysis. Due to the few data points, the result of your analysis is not statistically significant at 95% confidence interval.
I'm going to give my uneducated opinion at the end of the intro. Here is my opinion based on vibes: Actually the rate cuts follow the stock drop as opposed to the stock drop following the rates.
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how are you so fast, powell still speaking
You should really add the standard error of the mean to the average annualized return because the variation is HUGE!
Yes, they do send stocks higher. But the catch is most of the "big boys" are generally a few steps ahead of the FED. This means most of the moves from the interest rate cuts are already priced in before the FED officially does it. If you look at the stock market moves a few months ahead of the actual cut, you can see stocks moving higher.
@@henrythegreatamerican8136 It's not as if this is insider information. The bond market can be analyzed to infer whether and how much the market is predicting the target short-term interest rate will change. Some financial publications will even tell you about this result.
@Infurnaevely1
Richard over here spending 15 minutes explaining that everything is priced in.
On one hand that is unquestionably true. On the other, stock like Tesla go up 50%, down 50% and up 50% again in a span of one year. It may just be that the algorithms have priced in human stupidity, and at this point are just basically farming it at scale. Interesting times.
So basically, semi-strong market theory on rate cut announcement but there can be a sudden shock if Fed decrease the interest rate by 50 basis point. Very unlikely though.
markets: because emergent price discovery
active investing: because tiktokers have mysterious knowledge that the market lacks, even though they are also broadcasting that information on social media
😂
Should be 5min max
Most things that makes stocks go higher works this way: people believe the thing will make the stock go higher so they make the stock go higher by buying it. That's until the next quarter report when people decides to follow the profit instead
Or more demand in the stock market. If all the Americans save and invest >20% income like Asian Americans do, the flood of money into the stocks and bonds would drive up the prices alot.
Bull forever
Harassing short sellers using tax law can certainly make stocks go higher. (Aka produce inflation.)
@@xiphoid2011 It has. Also the asian markets lag behind the less-saving American markets...
So Pension Funds & Banks *anticipate* these things in advance of the event?
Why did no-one tell the rest of us that you can do that!
TO THE SPREADSHEETS!
Those stock/bond certificates were a great throwback to your older animated content - with the sound effect to boot! Pleasant additions to a wonderful video, thank you Mr. Bagel.
Relevant today. Rates cut by .25, but stocks tanked drastically moments later. It’s not just the cut or rise by itself, but the context behind the change.
As a coworker in Finance, Excel spreadsheet is the tried and true method. Good job man. Good job!
The most dangerous assumption is that you can extract meaningful conclusions from 8 data points with variance this high.
more of a fun exercise if anything
@@AbdulHamid-mx6ks I'm sure Richard knows this, but all the internet sources he mentioned I am sure do not.
Define "meaningful conclusions" in this context. This is not a model; Richard is not predicting how this market will respond. He's illustrating different ways markets _can_ respond.
yeah this bullshit
Almost like that was his entire point and to ignore all the clickbaity YT vids by people claiming they do have a meaningful conclusion from it.
Wait a second... I'm pretty sure the multiple R correlation on the regression is bounded between 0 and 1, not -1 and 1, so it is never negative. The model coefficient on the effective fed rate is negative, so the relationship between the effective fed rate and the S&P 500 is in the expected (negative) direction.
That's correct, an error on my part with interpreting the stat - updating the video now to remove the error.
@@ThePlainBagel Thanks for the reply!
For those viewers who don't spend their working days interpreting regression results, the larger point in the video is still valid. Notice that the R-Squared statistic indicates that only roughly 20% in the variation in the S&P 500 is explained by the fed rate. Richard is quite right that the substantially larger proportion of the variation (80%) is likely explained by other macro-economic forces.
Nerdy answer - the R value is bounded between -1 and 1 and indicates the quality of the correlation and whether it’s a positive or negative correlation. The often more reported R squared value is purely a measure of the quality of the correlation (better so than the R value alone) and is bound between 0 and 1.
@@carterwgtx precisely, good sir!
@@carterwgtx The "R-value" (Pearson's rho) ranges from -1 to 1, but that's not what we're talking about here. The multiple R value from a regression (technically, the coefficient of multiple correlation) takes on values between 0 and 1 and only indicates the degree of joint correlation, not the direction.
Edit: Conflating the multiple correlation with the standard correlation is the same mistake now fixed in the video. This is a very easy mistake to make.
It's not about the rate cuts, it's about the narrative. Rate cuts on a dismal economic backdrop are bearish, not bullish.
Stocks pumping 😂
@@arbgarlson5299for now😂
Whats so dismal about economy? And try not to say total debt
@@DarkoFitCoach We've just had massive inflation, inflation is still about 2%, we have mass immigration, low housing supply, high food prices, high energy costs, etc.
If the 1970s haven't shown you yet, excessive inflation is the worse possible outcome in an economy because it causes both a decrease in consumer spending as well as depreciation of investment assets, even if the price stays the same.
If prices of everything increased 10%, but businesses only report a gain of 5%, they've effectively become almost 5% less profitable.
@@Lolatyou332 100% agreed on that. And its all leftists fault. Curse their graves!
You're honestly my favorite finance youtuber. You explain stuff very simple so people like me can understand 😂
His old Bitcoin videos aged like milk though lmfao!!!!
@@pomp4401 how's that?
@pomp4401 youre uneducated. I doubt you even know that transactions stop when mining stops, thus btc is not money or currency. Lmao at you. Keep buying into a pyramid scheme though, you might be able to trick other fools.
I think the context in which rate cut happens makes a big difference, like after a crisis if rate cut happens, it is saving measure for the economy whereas after periods of high inflation, rates cuts will be perceived differently
It actually lowers my returns instantly due to currency volatility decreasing the value of my dollar-denominated positions as compared to the euros I use in my life.
I loved the Batman style screen jump to the Excel sheet!!!!
I remmeber a PM doing a presentation for us, simply put the discount rate goes down so according to any valuation model the Valuation should by default go up if interest rates are used as cost of capital
I agree with most of what you’ve said except that last part. The cost of capital (WACC) ≠ interest rate. The Fed funds rate is used as part of the WACC calculation.
An increase or decrease in the federal funds rate affects a company's WACC because the risk-free rate is an essential factor in calculating the cost of capital. The interest rate paid by the firm equals the risk-free rate plus the default premium for the firm.
In your experiment, I was reminded of PB's Chart Crimes video. If you just looked at the data that you crunched at first glance, the returns average to the market. But you spend the next 3 -5 minutes explaining the flaws in the approach like the lack of data points makes it hard to draw conclusions with any degree of accuracy for forecasting. As a bagel channel that manages degenerate retail investor's expectations, I appreciate you're approach to market education.
I was just about to comment about the why a rate cut is made matters and then you bring it up! Superb. Indeed, a small cut can be good, but a series of aggressive cut can mean panic, that something is seriously broken
Merci!
Your RUclips channel is the best. No fud no hype.
It’s about equity risk premium. When corporate earnings are too close to inflation you don’t have a ton of room to cut.
If you run the place correctly increasing rates takes out the trash and improves overall earnings ratios, giving you room to cut later.
But we never did that. We weren’t strict enough and non-profitable vapor ware and overcapitalized fueled speculation still dominates the economy.
If you do the math all of the returns in equities since the pandemic have been about the decline in the value of the dollar not in the earnings or production of the enterprise increasing.
Basically a lot of poorly run enterprises still need to be eliminated to properly prune the tree so it can be beautifully grown using additional money supply.
Till then it’ll cost you 2% inflation to print your way to 1% real growth. Which has been the issue since 2018 or so. We are not able to effectively deploy all the capital at the speed it is being created.
I don't really like that the Excel starts on the day of the rate cut announcement. In all likelihood, stock markets begin to price in rate cuts way earlier since they anticipate the announcement. The FED has a history of giving the people what they expect (of course, the expectations are formed by the FED via speeches, protocols, and previous actions, so it's not one-sided). So I would rather start to look at stock movements beginning at maybe 1-6 months before announcement of rate cuts.
Been needing more Plain Bagel. It's a Friday miracle! :)
A couple of technical points. First, it might be useful in your notes to refer to the data set you were using. Second, you explain why you use the dates that you do, and I think it was appropriate for the question that you were trying to answer. However, given where we are at today, I have found the data from the 1970's to be enormously useful. Thus, I usually start my analysis with 1970 data. Otherwise, really like the work that you are doing and growing up in MIchigan, I always try to support my neighbors.
Whether it’s TikTok Finfluencers or hedge fund aficionados, Richard is always able to explain how there is no magic bullet to finances and it’s more complicated than most of us want to believe.
p.s. Loved the Excel breakdown. Would be interesting to see more of your Excel witchcraft
Would love to hear your view on the economist Richard Werner and his position on interest rates and money creation. Thanks!
Before watching the video, my best guess is that markets would probably drop during periods post rate-cuts because the rate cuts themselves would generally be done to stimulate an economy in a not great state - that combined with the fact that the rate cuts even in theory should have a have a bit of a time-lag before their effects can be felt.
Though one doesn't know for sure, the 30 to 120 day period before the rate cuts start will see the market's anticipation of the cut. It would
be helpful to see a spreadsheet start date around 90 days prior to your current one.
You should apply standard error margins to your historical data to see if there is even a statistically significant correlation. The was a lot of variation in you small data set. It may just be that the average is too random to be significant.
Great video. Once rate cuts are announced, they temporarily go up higher. But the cuts are already priced in, in result “lost their luster” BECAUSE although rates are getting cut. They’re not getting cut in a faster pace. Therefore, Sinking the economy as rates go lower
Thanks Richard.
Opportunity cost: two powerful words when it comes to capital allocation 🙂
Excellent information coupled with simplicity.
👏👏👏
That Batman transition killed me 😂
Since you can empirically prove that companies tend to use cheap credits to buy back shares lower interest rates can have a rather big effect on returns.
so it's like regression to the mean after a praise/criticism;
paradox of seeing better results after a criticism and worse after a praise (only because these actions came at specific low/high points of the average outcome)
so basically you do a rate cut at a low to get back to the average, whilst in the selected timeframe it looks like stonks
Very opportune and needed episode, thanks man
wow, I've been waiting for a new video for a long time. it's finally out🍒
"Before hopping into the dark secrets held within my sheets" gave me an actual laugh. Thanks so much for that!
Its good stuff
Your consultation and encouragement have made a huge difference for me. I'm so grateful!
This content is superb. Educative, with data to illustrate the thesis that things are unpredictable after all, explained in simple terms and shortly. With some hilarious transitions. Thank you for creating this.
i watched i thousend of videos but your videos are the best ones you explain everthink continue boss
Excellent video on a really interesting topic! I really enjoyed seeing ALL the numbers shown in a table format. Media and journalists these days are so quick to jump on a single arbitrary number and craft a narrative around that. It’s refreshing to see the entire dataset. Informative analysis and explanations as usual too. Thank you Richard!
If it’s not too much to ask, I’ve got a suggestion for your next video: Japan’s carry trade. What it is, how it works, and how Japan’s recent increase to their interest rate will impact the JPN/US carry trade / stock market / economy accordingly.
Plain and simple as always.
I love how I watch every Richard´s video knowing that in the end all that matters is investing in the long term, and still i´m excited to watch the next video haha
Yes, everything is clear, professionally competent, accessible! Well done!! Thank you!!! Respect
1:03 stimulating for the economy in the very short term, really need to add that qualifier.
This research is great! More of these types of videos please!
It is the expectation of lower rates that cause stocks to rise before the announcement as we see they have already been rising before the one expected in Sept. So essentially it is already baked into the cake, but lowering rates also have the effect of preventing drops in stock prices in the future and preventing a hard landing/recession. all else being equal, since many events that cause the market to drop are not predictable under control of the Fed.
GOOD EXPLANATION THANK YOU
Very informative! Just in time😊
Richard, thabk you for the amazing video. So many fun little editing nuggets here. TO THE BOATMO... SPREADSHEETS!
u should find a way to put the Ampersand into the bagel so the plain is right above the bagel would look waayyy cooler otherwise good video ty for sharing.
Great analysis. Thanks for sharing.
I didn't get convinced that you are a bagel, though.
Very informative well presented and engaging🎉
Nice timing on the video. I assume you were developing this before Powell made his announcement.
Aswath Damodaran (sp?) has a theory that the economy drives the fed funds rate vs the other way around. I think if you overlay the FFR over inflation I want to say inflation is the leading indicator.
12:25 is a great point, and I would suggest that perhaps what rate cuts do is slow the decline in markets more than leading to a massive surge. Absent a rate (or when the market thinks there will be one but there isn't-see the last 60 days), the decline might have been worse.
Okay so here's what I think
1) The one-day and one-month calculations are a little too short-term to assess the impact of rate cuts on the markets.
2) The tricky thing, however, is that the one-year timeframe is a little long as, just like you said, most expansionary campaigns don't last more than a year.
So before the end of the campaign (which usually coincides with the end of the expansionary year) markets have already priced in rate hikes resulting in prices scraping a significant amount off its earlier gains.
Hi i really do like ur strategy and just quick question do u set stop loss on this strategy?
What a good lesson. Thanks for helping ordinary people
Thank you for another lovely tutorial with great moments. You're an angel helping hundreds make money and better there lives.
appreciate the video, certainly gave some colour to the rate cute issue!
waiting eagerly for your training sessions!
More dollars is more investment short term. The hard part is knowing if the correction works because it doesn't inherently force positive growth #, and a correction doesn't always result in negative growth numbers. Ideally this is how countercyclical fiscal policy works in theory. You want lower highs and higher lows, smoothing out the economy and as boring of a stock market as possible. I think the stock market lags a bit with actual growth in the economy. The effect isn't instantaneous. The announcement is sometimes a small drop of water into the bigger bucket of inputs for the daily price. One can't know what the alternate timeline is of what the prices would be if the opposite policy were enacted.
The market 100% tries to factor in rate cuts so you'd need to somehow try to see when the market expected a rate cut and plot from there which would be hard.
On the advice to stick to long-term, while I agree, asterisk I wouldn't put in money while the market is obviously inflated and in a bubble.
I also feel tax rates are going to have to eventually rise so might be worth pulling out your gains in a bubble with historically low tax rates but that's up to individual factors.
Thank you so much for this video.
Thank you d Your calculations is on next level .it's amazing
Would love for you to do a video on your journey on becoming a CFA
How do you always make such good videos?
I always love your videos. It's obvious how much work you put into each one and I'm grateful :)
Thanks for the content
The link of the spreadsheet would have been nice.
Amazing informative video thanks Mr. Bagel
Thank you for another great explanation video!
Regarding the discount rates, don’t forget that some smart market participants may use expected real risk free rates, E(r_Tbill - r_inflation). It’s very possible that the ERRFR has been assessed as negative for this past bull run (inflation exceeding T bill rates), and as people start to see cracks in the economy the ERRFR may revert to a positive value, causing more significant discounting of cashflows as well as reduced revenue expectations and other effects that would follow a weak economy
Your setup for this trade looks very interesting and effective. I'd love to hear more about the approach you took here.🥕
Something to be aware of, the stock market is a prediction market, this means that some people will start buying more stocks as soon as a rate cut is suspected or announced, which means before the rate cut actually happens it begins to be "priced into" the stocks, even if on a small scale that capital will not be captured in the up swing when we look at the actual rate cut day.
Great explanation
Thanks for explaining everything bro
Great source of information thanks
Could you do a video on impact investing for climate change? So far the best I've come up with is the GRID etf but maybe a discussion of if buying certain stocks/etfs as an individual investor actually helps those companies/sectors. I want to divest from fossil fuels but the problem I ran into was that index funds/etfs that exclude fossil fuel companies are very heavy on US tech stocks like google and meta and i'm not sure how much more ethical tech companies are than oil companies at this point.
don't worry, i'm mainly in target date funds and the s&p 500, but i'd like to green my portfolio going forward and it's been difficult to find good information on the topic.
Thanks for breaking it down.
If I had to make a bet: The short term "pop" will be more pronounced this time because of how many inexperienced speculators are in the market right now.
Richard is right--there are not enough data points to make robust conclusions. But now, more than ever before, we have retail investors trading based on sentiment and story.
I'm staying out of the casino. But I wouldn't be surprised if we see some serious volatility when a rate cut campaign begins.
your video such amazing, could you please explain more about the technic of your strategy if you have another video that explain your technic. Thanks in advance
I use 2 moving averages and bulls and bears indicators. Mostly focus on bulls and bears as it helps with pattern recognition better.
Rate Cuts do increase asset prices for several reasons
1) rate cuts leads to investors not buying bonds and instead buying stocks and real estate chasing returns
2) rate cuts leads to more hedge funds and banks buying more stocks/assets on leverage at higher prices. best example is house prices driven up by lower mortgage rates. same thing happens to stocks.
3) rate cuts leads to carry trades and companies doing similar more trades
4) rate cuts leads to money creation due to how our debt based money is created by banks being only limited by affordability, which is directly affected by the interest rates on those debts
the rate cuts of 2008 and 2021 covid led to the mother of all asset stock bubbles.
but even rate cuts won't fix a negative territory completely broken economy where the public have no money and stocks values are saturated for next 30 years as if rates were 0. As shown by japan.
the only solution for that is a massive wealth redistribution from rich to the masses. which rich refuse to do.
Thanks Richard, we’re hoping for a rate cut in Australia, and I’m hoping house prices might come back to earth. Or has our dollar become worthless?
At the beginning, you say that for your sponsor there is 3 day free trial, but the text says 30 days free trial. Which one is correct?
(Not that I will try it 🙈🙈)
Hey, what do you think about modern monetary theory?
always look forward to new videos on your channel. Thanks for making trading so fun!
29:26 I think one aspect with this data, is that this is more related to times in which there was likely a recession that caused slowdowns in the American economy in which this is the reason why returns were lower.
Rate cuts, depending on how much, are bearish… HOWEVER the more the cut, the more they print and printing will send markets blazing!
I'd be curious to see the valuations (maybe use trailing P/E) of the S&P500 and Russell 2000 at the beginning of each rate cutting campaign. Does it matter what valuation we're starting from?
people expectations /perception base on past results to actions makes stocks goes up when rate cuts happen sometimes stocks goes down because of profit taking
Is the bond market more directly correlated? I'm curious what the numbers in this spreadsheet would look like when using bond index benchmarks rather than stock index benchmarks
Bonds have a very direct relationship to interest rates, I debated discussing it but you really wouldn’t need to dive that deep to see the negative correlation
Historically, that's been the case, but we are in different times. 70% of my securities are bullish today, but 10% are consolidating, and 20% have dropped today...
All your videos are must listen
Love the Bagelman (Batman) transition to the spreadsheets!
Stock prices are based on many factors. Rate cut is just one of many and its impact is often minor.
I wonder about the excess returns when you substract the market returns after these interventions by the average returns from the same months where no interventions took place.
Thank you for sharing your analysis. Due to the few data points, the result of your analysis is not statistically significant at 95% confidence interval.
I'm going to give my uneducated opinion at the end of the intro. Here is my opinion based on vibes: Actually the rate cuts follow the stock drop as opposed to the stock drop following the rates.