A Fed Pivot is Not Bullish

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An old saying cautions one to be careful of what one wishes for. Stock investors wishing for the Federal Reserve to pivot should rethink their logic and review the charts below.

The second largest U.S. bank failure and the deeply discounted emergency sale of Credit Suisse have investors betting the Federal Reserve will pivot to less aggressive monetary policy. They don't seem to care that inflation is running hot and sticky, and the Fed remains determined to keep rates "higher for longer" despite the evolving crisis.

Like Pavlov's dogs, investors buy when they hear the pivot bell ringing. Their conditioning will prove harmful if the past proves prescient.

The bearish history of rate cuts

Since 1970, there have been nine instances in which the Fed significantly cut the Fed funds rate. The average maximum drawdown from the start of each rate reduction period to the market trough was 27.25%.

The three most recent episodes saw larger-than-average drawdowns. Among the six other experiences, only one, 1974-1977, saw a drawdown worse than the average.