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Stocks Don't Always Rise on Rate Cuts  06/16 09:25

   (AP) -- When the Federal Reserve cuts interest rates, or even hints that 
it's about to, investors cheer.

   That's because lowering rates stokes the overall economy, which sends stock 
prices higher -- usually, that is.

   The Fed has initiated 16 rate cut cycles since World War II. In 11 of those 
cycles, the stock market was higher six months later, and was still higher 
12-months later in 13 of them.

   Still, sometimes it takes longer for the gains to materialize. Five times 
since World War II, the S&P 500 was down six months after the start of a Fed 
rate cut cycle. That includes the 2001 and 2007 cycles, which corresponded with 
major recessions. The market was still down sharply 12 months after the Fed 
began to cut rates in each of those years.

   "Rate cuts haven't always led to market recoveries," said Sam Stovall, chief 
investment strategist at CFRA.

   The Fed is facing pressure to cut rates amid signs of slowing economic 
growth. The benefits of the 2017 tax cuts have waned and President Donald 
Trump's tariff threats with China and Mexico have roiled financial markets.

   Last week, Fed Chair Jerome Powell set off a rally on Wall Street after he 
signaled that the Fed is willing to cut interest rates to help stabilize the 
economy if the trade war between Washington and Beijing starts to crimp growth.

   A majority of investors expect a rate cut at the Fed's July meeting, 
according to the CME Group.

   If it does, should investors expect the move to boost stocks six months from 
now? Or a replay of the Fed rate cuts over the past two decades?

   Stovall says it's likely that a Fed rate cut this year will drive stocks 
higher, as he doesn't see major parallels now with the economy and markets in 
2001 and 2007.

   That doesn't mean the market will necessarily be spared more volatility in 
coming months, given the market's jitters over the U.S.-China trade dispute and 
the damage it could do to the global economy and corporate profits.

   "Recessions have not been be repealed, but maybe they could be postponed," 
Stovall said. "Maybe what we find is that a rate cut, or a series of rate cuts, 
helps this bull market last a little bit longer, but it's probably just 
delaying the inevitable." 


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