Elliott Wave Options: Buy the Rumor, Sell the News on Rate Cuts!
Investors have had to exercise extreme patience over the past few years. First, the Federal Reserve raised interest rates over a far longer timeframe than investors expected. Then, they’ve held rates at their highest levels in 15 years for a prolonged time.
The bank is looking to cut rates at its September meeting. That means the cost to borrow money will finally decline. As that happens, assets should take off.
That’s because lower interest rates make it easier to borrow. That includes everything from buying a home and a car to starting a business. Lower interest rates typically cause the stock market to trend higher, and for the economy to post faster growth.
However, markets are also forward-looking. That means that investors may have already priced in the Fed’s move in September. Meanwhile, the market continues to trade a bit more on the fearful side.
Volatility remains elevated. And with earnings season underway, companies missing on earnings are seeing a bigger selloff than they usually do on average.
If anything, the market’s move suggests that the rumor of rate cuts has pushed markets higher. Once those rate cuts start, they may be slow enough that markets sell off anyway.
For now, traders should remain cautious. That doesn’t mean the market will have a massive selloff. Only that markets will likely see continued daily volatility through the fall.