SPY: 2007 vs. 2024 Rate Cut Cycles

3 de out.

Economic Indicators Comparison (2007 vs. 2024):
In both 2007 and 2024, several key economic indicators show notable similarities, suggesting the market faces comparable macroeconomic challenges:

• Unemployment Rate (September 2007: 4.7%; September 2024: 4.2%)
  
• US Inflation Rate YoY (September 2007: 2.5%; September 2024: 2.5%)
  
• US Housing Starts (September 2007: 1.238M; September 2024: 1.235M)
  
• US Leading Economic Activity (September 2007: 100.4; September 2024: 100.4)
  
• US Existing Home Sales (September 2007: 4.5M; September 2024: 3.95M)
  

These parallels reinforce the notion that the 2024 market may experience similar stress as 2007 unless significant positive economic developments occur.

Overview:
The charts and additional data provided give a compelling comparison of two major market cycles: 2007 and 2024. Both cycles show striking similarities in market behavior, particularly surrounding the first rate cuts by the Federal Reserve. We see a top in the S&P 500 (SPX) in July of both years, followed by corrections, recoveries, and rate cuts in September.

2007 Market Behavior:

1. July 17, 2007 - SPX Tops: The S&P 500 peaked in mid-July 2007, reaching new highs as the economy, on the surface, seemed stable.
   

1. -9.5% Correction: Shortly after the top, the market corrected, declining by 9.5% in response to growing concerns about the subprime mortgage crisis.
   

1. Full Recovery: The market briefly recovered as investors expected the Federal Reserve to step in with supportive policies.
   

1. September 18, 2007 - First Rate Cut: The Federal Reserve cut rates for the first time in September 2007, sparking optimism that monetary easing could prevent further economic deterioration.
   

1. Market Collapse: Despite the rate cuts, the crisis deepened, leading to a full-scale market collapse as the global financial crisis unfolded.
   

2024 Market Behavior (So Far):

1. July 17, 2024 - SPX Tops: Once again, we see the S&P 500 peak in mid-July 2024, a period marked by inflation concerns and economic uncertainty.
   

1. -8.6% Correction: Similar to 2007, the market corrected by 8.6%, driven by fears of a potential economic slowdown and the anticipation of monetary policy adjustments.
   

1. Full Recovery: The market saw a brief recovery, as investors anticipated rate cuts to alleviate economic pressures.
   

1. September 18, 2024 - First Rate Cut: The Federal Reserve cut rates on September 18, 2024, echoing the 2007 scenario. However, whether the market will collapse, stabilize, or recover remains to be seen.
   

Comparative Analysis:

• Topping Patterns: Both 2007 and 2024 show a clear topping pattern in July, followed by sharp corrections and subsequent rate cuts in September. This parallel highlights the cyclical nature of market reactions to monetary policy.
  

• Rate Cut Effects: Historically, the first rate cut has not always led to an immediate market recovery. In 2007, despite initial optimism, the market eventually collapsed as the underlying economic problems, specifically the subprime crisis, worsened. The question now is whether the 2024 market will follow the same path, especially considering ongoing inflation and potential economic stagnation.
  

Key Observations:

1. Corrections and Recoveries: Both markets experienced similar corrections post-top. The 8.6% correction in 2024 mirrors the 9.5% drop in 2007, showing that investor sentiment and market behavior can repeat under similar macroeconomic pressures.
   

1. Rate Cut Timing: In both years, rate cuts followed periods of market instability, with the hope that monetary easing would stabilize the economy. However, uncertainty looms in 2024, as it is yet unclear whether these cuts will prevent a deeper recession or lead to further volatility.
   

1. Potential for Market Collapse in 2024: While the 2007 market collapse was driven by the subprime mortgage crisis, the 2024 market faces different challenges, such as inflationary pressures, geopolitical instability, and evolving global trade dynamics. There remains a risk that the 2024 market could experience a sharp downturn if these issues worsen.