The Fed is a poor guide for stock investors
The S&P 500 usually rises whether the US central bank is raising or cutting rates. There are more reliable ways to decide on portfolio allocations
THE US Federal Reserve is widely expected to begin cutting interest rates this week, as moderating inflation allows the central bank to roll back some of its previous rate increases.
I expect that some investors will be tempted to chase stocks, given the stubborn conventional wisdom that interest rates and stock prices move in opposite directions. They should reconsider.
The theory is that stock prices reflect the present value of companies’ future earnings, a calculation that relies in part on prevailing interest rates to “discount” future earnings to the present.
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