Chart of the Month | Fed Funds Rate Reduction Drives Markets to New Highs

November 12, 2019 |
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U.S. equities reached an all-time high at the end of October as downside fears abated and risk-on sentiment improved. Among the positives, successful completion of “phase one” of the U.S. – China trade deal appeared increasingly likely and economic indicators showed an improvement in data, specifically in corporate earnings and employment. A wave of synchronized global monetary easing implemented over the past few months was key to extending the longest equity rally in history. In the U.S., the Fed lowered the fed funds rate below the rate of headline inflation, which has historically been a driver of stronger equity markets. The three-month – ten-year yield curve steepened by 75 bps, 50 bps coming from the fed funds rate reduction and 25 bps coming from improved growth expectations.

Chart | The S&P500 Reached an All-Time High as the Fed Reduced Lending Rates Below Inflation

Ivo C. Nenin

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Ivo C. Nenin

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