Market reaction to rate pauses and rate cuts
Hi James, Sean and Harry, How does the market traditionally respond to rate pauses and then how does it respond to rate cuts? Thanks, Kim
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Answer
Hi Kim,
Most of the context of this question we answered in Fridays “What Matters Today Report” although 24-hours later the market has again started pricing in another 0.25% hike by the RBA such is the fickle nature of the current market. Essentially the markets follow bond yields which like equities look ahead as opposed to what central banks are actually doing today.
- When rates/yields are rising quickly risk assets struggle with the selling most focused on the growth stocks.
- Conversely when rates/yields fall equities in general improve with the outperformance focused in the growth sectors such as tech.
- NB – there are nuances around this and the reasons for rate hikes or cuts are also influential.
