Fed Rate Drop
Updated: Dec 9, 2021
It's rare for a president to tie success to the stock market, but President Trump has made a habit out of it. Bloomberg published an article that links how the market behaves after every tweet he makes (https://www.bloomberg.com/features/trump-tweets-market/). The markets are volatile and independent measurements of the economy that does not always represent current state of affairs. During the panic over the coronavirus the markets have reacted negatively and in response the Fed cut rates. Over the course of President Trump's presidency, a rate cut has been met by an immediate gain in the market. On March 3rd the market had the opposite reaction to Powell's decision for half a percent cut.
While clinging to the market as a measurement for success offers a simple analysis for one's base (all they have to do is look at the numbers and see if they're in the red or green) it may not be the most accurate tool to align with.
In the past the Fed has cut rates to stimulate spending. While it hurts those relying on fixed income, the general philosophy is a reduced interest rate will encourage consumers to move money they were previously saving back into the economy, but as mentioned before the market does not have a constant behavior and a black swan like the coronavirus disrupts traditional outcomes. Consumers aren't excited to spend when they are too nervous to leave the house.
It's rare for a president to latch their success to the market due to its volatility. Its behavior is never 100% predictable and even if a strategy worked a previous year there’s no guarantee it will work again. We are seeing that with the markets now. On the day of a rate cut the DOW dropped 3.1% only to rebound 5.1% the next day when Biden won Super Tuesday.
One cannot guarantee the direction of the markets, and one certainly cannot attribute their success to any one individual factor. It takes constant vigilance and research to stay up to date with markets. If you have questions on finances and investments, let’s grab a coffee. We would love to talk.
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