Fed Rate Cuts - A Near Perfect Sell Indicator

The S&P 500 rallied 2.1 percent yesterday on the back of Jerome Powell's comments that the Federal Reserve would cut interest rates if the trade war continued to affect the economy.

Investors are foolish to buy on such news.  Historically, when the Fed cuts rates, you want to be well out of the stock market.

Indeed, falling Fed Funds rates and a steepening yield curve have almost always coincided with U.S. economic recessions.

Chart 1: Federal Funds Rates v. Economic Recessions

Chart 2: Yield Curve Steepness v. Economic Recessions

Currently, the yield curve is steepening and the Fed is likely to cut interest rates as the world slides into a synchronized recession.

Lastly, fund flows into the U.S. equity market, which I have discussed in my Participant Ponzi blog posts here, here, and here, are reversing.

Table 1: Participant Ponzi Fund Flows

You can download a full-sized version of this table here.

Investors should use any rallies to reduce equity positions.