Market Performance in Past Rate Cut Cycles and Current Strategy

Market Performance in Past Rate Cut Cycles and Current Strategy
A Review of Five Historical Easing Cycles and Today’s U.S.
Market Playbook
Recently, Fed Chair Jerome Powell’s speech at the Jackson Hole symposium caught
everyone’s attention. His dovish tone was so strong that markets are now pricing in
an 83.6% chance of a September rate cut. That got many investors excited, thinking
once the Fed starts cutting, the bull market is guaranteed. But I want to remind you:
history never repeats itself so simply. A rate cut and a stock market rally are not a
direct cause-and-effect, but rather a complex “two-step dance.” The motivation
behind a rate cut is what truly determines how the market reacts.
Today, I’d like us to take a look back at the five major rate-cutting cycles since 1990.
By studying history, we can see the present more clearly and better anticipate the
future.
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From history, Fed rate cuts generally fall into two categories:
“Preventive” cuts: When the economy hasn’t fully deteriorated, the Fed cuts early to
manage risks and sustain growth. These cuts are usually “icing on the cake,” injecting
fresh momentum into markets. Stocks often perform well.
“Crisis-driven” cuts: When the economy is already in trouble or in recession, the Fed
cuts aggressively to stabilize conditions. These cuts are more like “throwing a lifeline,”
but they don’t immediately stop the downturn. Markets often tumble first before
stabilizing.
1.1990–1992: Preventive easing, strong rebound
Background: U.S. economy faced the Gulf War and savings & loan crisis, sliding into
recession.
Fed action: From July 1990 to Sept 1992, the Fed slashed rates from 8% to 3%.
Market impact: Confidence returned. Dow +17.5%, S&P 500 +22.4%, Nasdaq +47.5%,
with tech stocks leading the rebound.
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The Dow gained nearly 18% in two years, the S&P rose 22%, and the Nasdaq surged
almost 50%. Tech was the clear leader, with companies like Microsoft and Intel
entering rapid growth. This rally cemented the Nasdaq’s long-term leadership in
technology
2.1995–1998: Mild cuts, bull market frenzy
Background: To avoid over-tightening, the Fed eased in 1995–96; then again in 1998
during the Asian Financial Crisis and LTCM turmoil.
Fed action: Rates trimmed from 5.5% to 4.75%.
Market impact: Expansion continued. Dow more than doubled, S&P surged 124.7%,
Nasdaq soared 134.6%—laying the foundation for the dot-com bubble.
The hottest sectors were tech and the internet: Nasdaq jumped over 130%, while
Cisco, Dell, and Amazon saw multi-fold gains, fueling the dot-com bubble. Finance
also thrived—Goldman Sachs and Citigroup profited heavily from M&A and capital
markets.
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3.2001–2003: Crisis easing, slow recovery
Background: Dot-com bust + 9/11 attacks → deep recession.
Fed action: Slashed rates from 6.5% to 1% in two years, one of the most aggressive
easings ever.
Market impact: Prevented total collapse, but recovery waspainful. Stocks only
bottomed and stabilized after 2003.
Defensive sectors like healthcare and consumer staples held up better. Companies
like Johnson & Johnson and Walmart offered shelter for investors. By contrast, tech
stocks such as Cisco and Yahoo lost over 80% from their peaks and took years to
recover.
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4.2007–2009: Financial crisis, rate cuts couldn’t stop the crash
Background: Housing bubble burst, global financial crisis—the worst downturn since
the Great Depression.
Fed action: Rates cut from 5.25% to near zero (0–0.25%), plus massive QE.
Market impact: Couldn’t prevent panic. Lehman’s collapse triggered a liquidity crisis,
stocks plunged in historic fashion. Recovery only began around 2010.
Nearly all sectors were crushed, except safe havens like gold and Treasuries. It wasn’t
until 2010, after combined monetary and fiscal rescue, that the economy stabilized
and a decade-long expansion began.
The recovery crowned a new generation of tech giants—Apple, Google, and Amazon.
Over the next decade, they solidified their dominance and reshaped markets.
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5.2019–2021: From preventive easing to pandemic shock
Background: 2019 cuts started as preventive, but COVID-19 turned it into extreme
crisis easing.
Fed action: Emergency rate cuts to near zero + unlimited QE.
Market impact: Triggered a breathtaking “V-shaped” reversal. Between 2019–2021,
S&P +~100%, Nasdaq +166.7%. The liquidity-driven rally is still vivid in our memories.
Between 2019–2021, the S&P doubled and the Nasdaq soared 167%. Tech and
internet apps led the charge—Tesla, Netflix, and Zoom skyrocketed, while chip
leaders like Nvidia and AMD also surged. This showed the immense power of
liquidity in driving markets.
Mark Twain once said: “History doesn’t repeat itself, but it often rhymes.” In markets,
this couldn’t be more true. The stories may not repeat exactly, but the rhythms are
strikingly similar. By studying history, we can find patterns that guide our next moves.
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Back to today: which type of easing do you think this is?
Powell’s Jackson Hole speech sent a clear dovish signal—September cuts seem
almost certain. Yet while the economy is slowing, it’s not in recession. That’s why I
believe this is more like a preventive cut—aimed at risk management, not
firefighting.
If cuts are meant to add liquidity, consider this: there’s already plenty of money in
the system. U.S. money market funds have swelled to a record $7.2 trillion. Much of
it sits in low-yield safe assets. Once rates drop, that cash may flow into equities—like
dry tinder ready to ignite into a powerful blaze
Of course, this won’t be a blanket rally. Some sectors will significantly outperform,
while others—already overvalued—could face sharp selloffs if earnings disappoint.
That’s why this easing cycle is likely to bring a structural market, not a universal bull
run.
Recently, capital has clearly flowed out of weak-growth sectors like consumer staples
and utilities, and into tech, AI, and semiconductors. This has pushed valuations in
those areas to unprecedented highs.
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For example, the “Magnificent Seven” hit a combined market cap of $19.8 trillion,
nearly 30% of total U.S. equities. In the S&P 500, they make up around 34%—enough
to dominate the index. This year alone, they’ve driven the bulk of gains—in May,
they contributed 62% of the S&P’s advance.
These numbers highlight how the Magnificent Seven—especially Nvidia—have been
the backbone of this rally. Yet they also reveal a structural risk: the market’s heavy
reliance on a few giants. That’s why Nvidia’s earnings this week will be a critical
guidepost, not just for itself, but for the entire tech and semiconductor sector.
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At this stage, we mustn’t blindly overestimate what this easing cycle can deliver. Risk
management matters. A sound approach is balanced offense and defense: focus
offensively on AI leaders with clear application prospects, while defensively holding
healthcare, staples, and energy for stability.
Stay patient and disciplined. Rate cuts are a signal, not a guarantee. Markets may
swing—sometimes down before up. Don’t let emotions rule. Instead, pick companies
with real earnings and durable logic, not hype-driven plays.
If you’re overweight tech, trim a little and diversify into defensive or cyclical names.
And as money market yields decline, gradually deploy cash reserves into long-term
winners, step by step.
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At this stage, the smartest move isn’t to “go all in” on one side, but to stay
balanced—capture the upside from AI while also keeping a solid line of defense.
Make sure you’re following our daily strategy updates in the group and reach out to
us for high-quality stock picks and the latest trade plans that can help you invest with
more confidence and control.
Remember, investing is always a battle with yourself. As we head into the upcoming
rate-cut cycle, it’s critical to stay disciplined and sharp—keep your strategies
updated, adjust your portfolio dynamically, and focus on the structural opportunities
that offer real certainty. That’s how you make profits that are not just strong, but
steady and sustainable.
If you ever have any questions during your investment journey or need extra
support, feel free to reach out to us anytime.
You can send an email to the official Ward Capital Forum addresses:
support@wardcapitalforum.com
info@wardcapitalforum.com
service@wardcapitalforum.com
Ward Capital Forum website:
https://www.wardcapitalforum.com/
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