Focused Compounding Ep 473. What Happens to Stocks When the Fed Starts Cutting Rates?
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Sep 26, 2025 The hosts dive into the evolving role of the Federal Reserve and its current goals. They discuss how Fed transparency has shifted, moving away from being a 'black box.' The conversation reveals that recent rate cuts may signal recession fears rather than inflation concerns. AI investments and capital expenditures are debated as potential growth boosters despite consumer weaknesses. They also review past easing cycles' effects on stocks and explore structural challenges facing fintech companies.
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Cuts Signal Recession Concerns
- The Fed cut because it sees a recession risk, not merely to recalibrate policy.
- Recessions generally reduce inflation, which makes easing more justifiable when growth weakens.
Rate Cuts Don't Guarantee Stock Gains
- Historical easing cycles produced mixed equity returns because context (recession vs. soft landing) matters greatly.
- Cuts in 2001 and 2007 preceded recessions and poor market returns, while 1995 and 2019 saw better outcomes.
Use Earnings, Not Rates, To Judge Markets
- Track corporate earnings growth when rates fall to predict stock returns more reliably than rate moves alone.
- Favor markets where earnings are accelerating while rates ease, since those historically outperform.