The Fed raises rates when inflation is high, strengthening the dollar and pushing investors toward bonds over gold. When it cuts rates during recessions, the dollar weakens and gold rises. Stock markets typically bottom 6-9 months before the economy recovers, creating swing-tradeable trends that last months to years.
Here's the cheat code to predict where the markets are going to go based on what the Federal Reserve does in such an easy way even a dog could understand it. The Federal Reserve changes interest rates only based on inflation and unemployment. If the problem is high inflation, they will likely hike interest rates to calm down demand and bring prices down. And if the interest rates go up, also the interest rates of bonds will go up, so the real bond yields in the short term will go up. But gold, that is the primary inflation hedge asset, now has to compete with bonds that are much safer. So typically in the short term it will go down. And as people will prefer bonds in dollars, dollars will also go up. Now wait for a second because we're almost there, okay? The stock market might suffer for a bit, but if the economy is fine, it will keep rising. It will only fall if a recession occurs, which is the second problem. If the Fed has to deal with high unemployment because of a recession, they will lower interest rates to stimulate the economy. So if interest rates are at zero, the interest rates that US Treasury bonds pay will be really low. So if you just want to hedge against inflation, yeah, bonds are not a great choice, so you choose gold instead. So typically during cutting cycles, gold goes up and the dollar typically goes down. All of this, the stock market typically crashes during recession and bottoms 6 to 9 months before the economy recovers. These are all long-term trends, something that you can swing trade with the trend that lasts for months or years. This is not a day trading strategy, but if you're a day trader and you see volatility, you know why it happens. If you understood, speak. Come on, speak. Well, good enough. Good boy. So if you want to learn how to follow the flow of money because of macroeconomic reasons, you might want to follow.
