Why the Market's Dependence on Rate Cuts Is Unhealthy

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Stocks would be nowhere near the levels they're at had the Federal Reserve not implemented a low interest rate regime after the financial crisis. Stocks would also be way under where they are in 2019 had the Fed not cut rates July 31. 

Many have said the market's dependence on rate cuts is unhealthy. Mike Loewengart, vice president of investment strategy called this dependence "perverse" in a phone conversation with TheStreet in July. 

Corporate Investment Strategist Chris Macke broke down exactly why this dynamic is perverse. 

"Well, it would be good if the market understood that not only is the Fed data dependent, but the markets are very Fed dependent," Macke said. "And if you have a choice, you would much rather have an equity market that was  dependent on economic growth and earnings. But they don't have that. So they have to be dependent on the Fed and that is not the ideal situation to be in."

Recently, the Fed cut rates, validating the market's level at that point, which was elevated in anticipation of the rate cut. To start August, stocks are falling as the threat of 10% or 25% tariff on imported Chinese goods is worsening fears of a global growth slowdown. Stock investors had priced in at least one rate cut, and possibly more, but the heightened fears seem to ignore the possibility of more rate cuts, as stocks fall at the same time the ten year treasury slipped to 1.76%. 

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