Diverging stock and bond views on Fed turn into chasm: McGeever
ORLANDO, Florida -Bond investors are by default pessimists and equity investors are naturally optimistic. But this market maxim doesn't fully explain the seemingly wide chasm developing between the two camps' views on the U.S. economy and looming interest rate cuts.
This amount of implied easing is consistent with the early 1990s recession, the dotcom crash, the Global Financial Crisis and Covid-19, according to Bob Elliott, CEO at Unlimited Funds and a former executive at hedge fund giant Bridgewater. The only times in the modern era the Fed has started an easing cycle with a half-point cut were in January 2001, September 2007 and October 2008. Two of those were emergency moves, the other followed two Fed conference calls to discuss the emerging signs of severe market stress at the time.After the recent correction fueled by the unwinding of several crowded trades, a selloff in Big Tech mega caps, and a violent volatility shock, stocks have staged a remarkable recovery.
The Fed's estimate of R-star is 2.8%, meaning the policy rate could be cut by 250 basis points and still be considered"restrictive". So maybe significant rate cuts need not be associated with recession or crisis?
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