🔮 Better than the Oracle? Our Fair Value found this +42% bagger 5 months before Buffett bought itRead More

Lower rates would be bullish for markets, even in a recession - Piper

Published 05/01/2024, 05:45 AM
Updated 05/01/2024, 05:47 AM
© Reuters Lower rates would be bullish for markets, even in a recession - Piper
SPY
-

Piper Sandler strategists said Tuesday that higher unemployment rates (UR) could be a bullish sign for the markets as it would likely bring down inflation and interest rates, making risk assets more appealing for investors.

“Seeing a higher UR and lower rates would be bullish in our view as higher rates are everybody’s #1 fear,” strategists said in a note.

Historically, this has also been the case, strategists stressed, and has been observed in five recessions since 1960 where a peak in interest rates coincided with the bottoming out of stock prices.

While the perception of how stocks respond to declining interest rates during a recession is influenced by more recent recessions in 2001 and 2007, the dynamics were notably different during the recessions of 1969, 1973, 1980, 1981, and 1990.

In these earlier periods, stocks declined due to higher rates “and then bottomed as rates peaked,” Piper Sandler noted.

Strategists highlighted two key takeaways from historical analysis of inflation regimes. First, interest rates typically continue to rise into a recession, initially leading to a decline in stock prices. Second, once interest rates begin to fall, stocks start to recover and climb higher.

“This isn’t what we’re used to because most of us are conditioned by, and lived through, the 2001 and 2007 recessions where inflation was low and rates and stocks were positively correlated. We’re playing a totally different game today,” they continued.

“Current correlations point to stocks rallying if rates fall even if we enter a recession,” strategists added.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.