Why a Fed Rate Cut Won't Help Stocks

The market roared on the perception of a change in bias to something away from tightening. Nobody really knows for sure what will happen; not even the Fed, which tends to look in a rear view mirror.

But while the mantra is not to fight the Fed, as witnessed by the market's knee-jerk rise today, there's a flip-side to the story, courtesy of Bill Hester, who writes a monthly commentary for Hussman Funds.

In his March report , he noted that

investors should keep in mind that the stock market's reaction to Fed cuts has historically been dependent on other conditions, such as valuations, economic expectations and the slope of the yield curve. The belief that rate cuts strongly benefit the stock market is based on conditions that don't match the present very well. It's possible that a Fed cut might help the stock market later this year. But given current conditions, history doesn't support much risk-taking based on that hope.