Autumn has confirmed the economic expectations that were already drawn at the start of the second half of the year. In fact, JP Morgan, one of those reference thermometers for measuring fever, euphoria and market ailments, in August assessed the probability of a recession in the United States and the world at 35% before the end of 2024. And, one year from now, the probability of that crash not only remains unchanged. It could reach 45%.

After 365 days of unexpected growth, the US economy today shows signs of slowdown. July’s jobs report was actually weak, with the unemployment rate rising for the fourth consecutive month. The word “recession” occupies a fixed place in the news, as much a protagonist as the news about tornadoes in these days of turbulent weather.

To alleviate the slowdown, the main central banks on the planet have begun to change their monetary policy. After a period of intense interest rate increases starting in 2022 to control inflation, they have decided to slow down. According to many analysts, this change of direction, after that stock market rally two years, could be key to achieving a “soft landing” for the United States economy and revitalizing growth in the case of Europe and China.

So far central banks have been successful in their mission to tackle inflation. In addition to achieving this, recession has been avoided and stock markets have set new historical highs. The Standard & Poor’s 500 index (S&P 500), for example, gained more than 30% between the start of the increases by the Federal Reserve System, the central bank of the United States (known as FED), and its recent policy change monetary. The Eurostoxx 600, for its part, appreciated around 28% since the ECB began to raise interest rates in the Euro Zone until the cuts began.

And therefore, there are a series of questions on the table. What can happen to the markets? Will the rate cut allow equities to maintain the upward path? Logically, only time can answer this question, but it is possible to analyze what has happened in the past in similar situations.

Gasoline for the bags?

A recent and easily memorable example, like everything that happened during and after the covid-19 pandemic, at the beginning of the 1920s: the economic momentum has been fading, and that is why now the central banks, once overcome the inflation crisis, have decided to stimulate the economy again with rate cuts.

Logically, as rates fall, financing is expected to become more accessible to families and businesses, which in turn could translate into an increase in both investment and consumption. Which, of course, would be good for business results.

And that’s not all. The reduction in rates also encourages the migration of capital from fixed income to equities, which could give a new boost to the stock markets through the expansion of multiples.

In short, apparently the rate cut can be gasoline for equities. But is this really so? What does the empirical evidence say? Well, basically, it leaves an absolutely key lesson: Rate cuts are a blessing for equities when the economy avoids entering a recession. That is, rates are usually cut when economic activity slows down. If the problem is deep, history says that its effects are not enough to offset poor business results. However, if a recession is avoided, equities tend to perform excellently.

And, therefore, the definitive question is: At what exact moment are we currently? The riddle is answered in this latest video from If I had known, the Mutuativos financial information channel. At the moment, the North American economy seems stronger than expected a few months ago, which could be the prelude to very good news.