The Bear Room, page-3002

“In the first 200 days following the first cut, equities typically decline by 23 per cent on average. The start of the rate cycle signals the beginning of a deterioration in growth and profits”

Following Powell’s speech, money markets continue to predict that US rates will fall by 1 per cent by the end of 2025. There’s only three meetings left – September, October and November – so that assumes we get one 50 basis point cut somewhere along the way.

Cuts of that magnitude are typically reserved for emergencies – and emergencies are not great for stocks.

Wall Street’s steady march higher following this month’s brief but brutal market rout means valuations are once again approaching extreme levels, and equity risk premium – the earnings yield on riskier equities compared to the low-risk bond yield – is all but non-existent.

But no hint of caution is priced into markets.