Stocks and Yields may See Shakeup Around Potential 2023 Fed Rate Cuts
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Treasury yields historically fall in the 3 months before the Fed's first rate cut of an easing cycle, with the 10-year yield falling a mean of 0.9 percentage point.
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Stocks historically see flat performance in the 3 months before the first cut, but then rally strongly over the next 6-7 months.
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The timing of the first cut matters - if later than expected, yields could drift higher near-term before falling on the cut.
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Stocks rallied at the end of 2022 on expectations of rate cuts in 2023, but have recently pulled back as the pace of cuts is questioned.
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If the economy sees a soft landing, the 6 rate cuts priced into markets may be too aggressive, leading stocks to stall.