A number of credible analysts have been making the case that Fed rate cuts are not necessarily good for stocks, specifically the first cut in a series of cuts. They claim that the data say that investors should buy stocks on the third or fourth cut in a series, but not the first.

I disagree. My analysis says that it entirely depends on conditions at the time of the cut. In a nutshell, if general conditions have rolled over and, thus, we’re already in, or on the cusp of, recession, while there’ll still likely be a pop higher in stocks on cut #1, they’re correct – it’s ultimately a sell-the-news event. If, however, the economy is still in expansion mode (albeit at a slowing pace [which justifies the rate cut]), that first cut is absolutely a buy-the-news event.

The latter describes our view of current conditions, and the appropriate market response to a rate cut should one come over the next few months. However, there’s a caveat, the trade war. If we don’t see marked improvement on the global trade front, and I’m not talking just China (Trump absolutely cannot go at the EU in the same vein following a deal, if we get one, with China), I see conditions rolling over before this time next year; in which case the first (or maybe the second or third) cut will indeed have turned out to be a sell-the-news event.

I’m not looking for a cut as the Fed concludes their June policy meeting this morning. Although I am looking for language that confirms that the market has it right (not in terms of conditions, but in terms of what it presumes the Fed will do) in discounting two or three this year, the first coming in July. If the Fed instead stays “patient” and comes across confident on the economy, look for the market to sell that news…