Market Musings 5/21/2024

Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!

Investors are so focused on rate cuts this year-why does the stock market care?

You’ve probable been hearing us and everyone else talking about #RateCuts non-stop this year.

Ever wondered why the market is so focused on it?

Let’s break it down.

First, when a central bank like the Fed lowers rates, it becomes cheaper for businesses and consumers to borrow money.

Cheaper for businesses to expand and invest in new projects.

Cheaper for consumers to buy big ticket items like homes and cars.

This boost in spending drives corporate profits and economic growth.

Second, lower interest rates make bonds and savings accounts less attractive.

You’ve probably notice high-yield savings interest rates rising above 5% in the past year.

The interest rate will fall with #RateCuts making investors look towards stocks for higher potential returns again.

This influx of investments will drive up stock prices.

And finally, lower interest rates can stimulate the overall economy.

Consumer confidence and spending increases with when it’s easier to buy a home or when there’s more job available.

As you can see, #RateCuts are more than just interest rates. It’s ultimately an economic driver.

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The statements, opinions and analyses presented here are provided as general information. This article is the opinion of the author. Anything within this article should NOT be considered an investment recommendation or advice. See Ursa’s full disclosures here.

Original Photo by Pixabay.