For more than two decades, the “Fed put” watched over the markets.
The “Fed put” was something of an unspoken guarantee. Whenever markets fell, the Fed would step in and lower interest rates. This would support stocks, and the bull market would continue.
Researchers found that since the mid-1990s, there’s evidence that the Fed was watching the stock market. If something went wrong, it would act to save it. A 2016 study sums it up:
We document that since the mid-1990s low stock market returns predict accommodating policy by the Federal Reserve. We show that this fact emerges because, over this period, (i) negative stock returns are strongly correlated with downgrades to the Fed’s growth expectations, and (ii) growth downgrades are highly significant in a Taylor rule framework.
In other words, falling markets influenced the formula that the Fed uses to set interest rates. And the Fed would lower them, which propped up stock prices.
The New Put Is Here
But before we go on, welcome to Cycles Trading with me, Phil Anderson. My aim with this three-day-per-week e-letter is to introduce you to the most powerful knowledge for building wealth. And that’s learning the importance of the 18.6-year real estate cycle and understanding its key relationship to stocks.
The fact is, no one else studies the market like this.
Most people are either “real estate people” or “stock people.” Very few are both. But by looking at only half the story, they miss what’s really moving the market.
And most importantly, they miss the opportunity to profit.
By regularly tuning into this e-letter, we’ll show you how to make the most of any market. Today, we’ll explain why the market still has a source propping it up… and why this completely tracks with the 18.6-year cycle.
See, in 2022, the Fed started raising interest rates despite market volatility.
Inflation was rampant, and the Fed did one of the few things it could. Change interest rates.
When the Fed started hiking, markets fell. All of them. Stocks and bonds alike.
It looks like the “Fed put” is gone.
But I don’t think we should expect the markets to continue falling indefinitely.
The Cycle Is Still Running
My research going back hundreds of years says that we are not at the end of the cycle… and now it has another source of support.
I call it the “Petroleum put.”
You don’t hear much about it in the mainstream press. But it’s here.
You may not have noticed this… but the Gulf states (including the Middle East and Africa) are awash in cash.
They have over $3.5 trillion in capital they are desperate to deploy, following windfall revenues from high oil prices due to Russia’s invasion of Ukraine.
And these trillions of dollars at their disposal will have a large impact on global markets.
In 2022 alone, the sovereign wealth funds based in Gulf states invested over $89 billion, according to Bloomberg. That’s twice as high as 2021.
And they’re not stopping this year…
The new “put” is here. The cycle isn’t over.
Don’t listen to what the mainstream media says. Follow the long-term patterns that have worked for centuries.
That’s why the 18.6-year cycle is so important. It provides the data and the evidence to know where and when the markets are going in the future. And we’re not looking at a true downturn until 2026.
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson