Even with the Federal Reserve poised to end all hopes of a March rate cut on Wednesday, the S&P 500 index remains at record levels.
Adam Kobeissi, author of The Kobeissi Letter on X said on Tuesday: “Even as three interest rate cuts were removed from market forecasts, the S&P 500 is just 10 points away from a new all time high.”
Why has there been such a disconnect between interest rates and equity markets? Let’s look at the evidence in the chart of the SPDR S&P 500 ETF (NYSE:SPY) the exchange traded fund that closely tracks the percentage performance of the U.S. large-cap index.
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Interest Rates Vs. Equity Markets
Note that through 2022 as the Fed was aggressively raising interest rates, the index moved lower — barring the occasional bounce higher.
While the Fed was still raising rates in 2023, it was doing so at a less aggressive pace, and investors sensed the central bank was nearing the end of its hiking cycle and pushed the index higher.
The Fed’s final hike came in July 2023, but it retained a hawkish tone at subsequent meetings and investors became weary of ...