Market Watch: This Fed Rate Cut Could Signal the Stock Market Peak

Article by Michael O'Sullivan in Wall Street Journal Market Watch

It is a sign of the times that both investors and politicians crave a rate cut from the Federal Reserve.

Over the last nine years, both have been spoiled by the Fed and other central banks, who have greeted any volatility with overly generous quantitative easing. Market tantrums have tested and chastened the Fed, and now Chairman Jerome Powell is already well behind on the plans announced last year to tighten policy by shrinking the central bank’s bond holdings.

Nonetheless, the Fed will cut the fed-funds rate on Wednesday. Markets, having created the “rumor” for the rate cut, may sell the news.

Now the risk is that markets’ obsession with the Fed may turn sour, and that 3,000 for the S&P 500 index marks the top of the market.

There are plenty of reasons to think we are at the “peak”.

Overall, the risk from here is that markets decide that monetary stimulus is in the price now, with economic and geopolitical risks rising, investors begin to reduce risk through the remainder of the summer.

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