The S&P 500 rallied 2.1 percent yesterday on the back of Jerome Powell’s comments that the Federal Reserve would cut interest rates if the trade war continued to affect the economy.
Investors are foolish to buy on such news. Historically, when the Fed cuts rates, you want to be well out of the stock market.
Indeed, falling Fed Funds rates and a steepening yield curve have almost always coincided with U.S. economic recessions.
Chart 1: Federal Funds Rates v. Economic Recessions
Chart 2: Yield Curve Steepness v. Economic Recessions
Currently, the yield curve is steepening and the Fed is likely to cut interest rates as the world slides into a synchronized recession.
Table 1: Participant Ponzi Fund Flows
You can download a full-sized version of this table here.
Investors should use any rallies to reduce equity positions.