Why stock prices don't always rise when the US Fed cuts interest rates

Of the many forces shaping stock prices, economic growth, corporate profits, and valuation are paramount. These deserve more attention than interest-rate movements alone

Investors worldwide are positioning themselves for a stock-market surge, encouraged by signals from the US Federal Reserve (Fed) that it will soon begin cutting interest rates. After all, the conventional belief is that stocks rise when the Fed cuts rates. Expectations of a 0.5 per cent cut at this month’s Fed meeting are growing, since inflation has cooled significantly, and is now nearing the Fed’s target of 2 per cent. Will rate cuts truly lead to higher stock prices? Disappointingly enough, the historical data shows that interest-rate changes — whether increases or cuts — are not strongly