“Hey everyone — Dave Denniston here. There’s a famous saying on Wall Street: ‘Don’t fight the Fed.’ And if you’ve heard it, you might think it means that when the Federal Reserve cuts interest rates, the stock market should immediately go up. Pretty simple, right?
But here’s the strange part. When you actually look back at history — charts of recessions, Fed rate cuts, and the S&P 500 — it looks like the opposite happens. The Fed starts cutting… and the market often falls even more. 2001, 2008, even 2020 — there are plenty of examples where the Fed was lowering rates and markets were still sinking. So does that mean the saying is wrong? Or are most of us just misunderstanding what it really means?
Let me show you something. If you pull up the Fed Funds Rate over the last 50 years and overlay recessions on top of it, a pattern jumps out immediately. Right before or during recessions, the Fed starts cutting aggressively. And during those recession periods, the market drops — sometimes by a lot. So the first impression is that rate cuts “cause” the decline. But that’s not what’s happening at all.
Here’s the key idea: the Fed cuts rates because something is already breaking. They’re not easing policy because everything looks great — they’re easing because the economy is slowing down, earnings are deteriorating, unemployment is rising, or financial stress is building. It’s reactive. Think of it like hearing fire trucks racing down the street. You don’t assume the trucks caused the fire. You assume the fire was already burning. Rate cuts are the fire trucks. The recession is the fire.
So if that’s the case, how is the old saying — ‘Don’t fight the Fed’ — still true? Here’s the real meaning, and it’s incredibly important for investors. The Fed controls liquidity in the financial system, and liquidity is one of the most powerful long-term forces behind asset prices. When the Fed is tightening — raising rates, shrinking its balance sheet — risk assets tend to struggle. Multiples contract, borrowing costs rise, credit tightens. When the Fed is easing — lowering rates, adding liquidity — risk assets eventually stabilize, recover, and then thrive. Not instantly. Not the next week. But easing cycles almost always lay the groundwork for the next bull market.
If you zoom out, you’ll see the same pattern repeat over and over again. First the Fed cuts rates. Then the economy continues to weaken. Markets may still fall. Sentiment stays pessimistic. And then — somewhere in that fear and volatility — the market bottoms. After that, liquidity plus recovery fuel the next expansion. This is exactly what happened in 1982, in 1991, in 2003, in 2009, and in 2020. Every time the Fed flips from tightening to easing, the bottom eventually forms on the other side of that pivot.
And that brings us to today. The Fed has already started cutting rates again. That doesn’t guarantee that markets go straight up from here — there can still be volatility, earnings pressure, and recession chatter. But if you study history, this transition from tightening to easing is one of the most important turning points in the entire cycle. It’s when long-term investors who stay disciplined are typically rewarded the most.
So here’s my question for you: Are you positioned appropriately for a Fed easing cycle? Do you have excess cash that should be working harder for you? Is your portfolio built to benefit from what comes next — not just what happened over the last year or two? If you’re not sure, or if you want a second opinion, reach out to me at Centurion Financial Strategies. This is exactly the moment when good planning matters. I can’t predict markets — no one can — but I can help you make informed, evidence-based decisions rooted in history, data, and a real financial plan.
Thanks for watching — and remember: don’t fight the Fed… but make sure you understand what that actually means.”