Your Guide to Navigate Rate Cuts Near All-Time Highs

Today’s Market Update

It is the end of the month and this month the markets have not really gone anywhere. In the first half we were up, in the second half we came down, and finally, we ended up almost where we started.

The entire month turned out to be a washout, thanks mostly to Mr. Trump. Today’s trading day was also very dull. It was the expiry day on the options front. Now, the regulator is planning to allow daily expiries for Gift Nifty.

Apart from this, there is a lot of focus on precious metals. It feels like we may be near an intermediate top. The bull market is not over, but from time to time the market pauses and ensures that short-term traders lose heavily.

• Nifty has not had a single green candle in the last nine days. In the last two days, it ended near the previous day, showing signs of oversold conditions. The market is not willing to fall further without a bounce.

• Nifty Junior was flat at 0.01%, midcaps at 0.09%, and small caps at 0.16%. There was no real action.

• Nifty Bank was slightly up at 0.32%, supported by PSU banks.

• Gold hit a new all-time high in rupee terms at ₹11,716 per gram but corrected later to ₹11,497.

Other Market Triggers

• Big stocks like Reliance, Bharti, L&T, ITC, and Titan were down, while cement and steel did better.

• Hero Motors and PSU banks also added some support. In Nifty Junior, stocks like Indigo, Shree Cement, Hyundai, D-Mart, VBL, Adani Power, DLF, Bajaj Holding, and Lodha lost ground.

• PSU banks like PNB, Canara Bank, and Bank of Baroda did well, showing a clear rotation from private to public banks. Vedanta rose 3%, Jindal Steel 2%, and commodity-related stocks did well. Swiggy, United Spirits, and Britannia also rose.

• The mover of the day was Tata Investments, which shot up 16.82% on news of the Tata Capital IPO and a stock split. Tata Capital IPO is expected near ₹320–₹350, but it was trading at ₹1,000 in the unlisted market recently. Those who bought there may now face a 60–70% loss. This shows the risks of unregulated markets.

• KPIT Tech fell 9.27%, its worst drop in a year, and the stock has already been weak for a while. Momentum strategies had already exited it.

U.S. Market Update

• In the US markets, S&P 500 was up 0.26%, Dow Jones 0.15%, and Nasdaq 0.48% in the last session.

• Over the past month, Nasdaq has risen 5% and is up 24% this year. Stocks like PayPal, Accenture, Starbucks, Nvidia, and BlackRock are doing well.

• This was the 29th September trading day, and these gainers may do well in the near future too.

What to watch next ?

• On the currency front, the USD-INR has formed a flagpole pattern over the last three weeks. If it breaks out, we could see 90 very soon. If it falls below 88.60, the pattern will fail.

• Right now, the rupee is weakening both against the US dollar and against other global currencies like the euro, GBP, and Swiss franc. This is bad for our purchasing power. Trips abroad and imports will become much more expensive.

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What To Read This Week ?

Market Pulse: Navigating Rate Cuts Near All-Time Highs

📊 Historical Context: Rate Cuts and Market Impact

Analysis of historical episodes, where the first interest rate cut by the Federal Reserve occurred while the S&P 500 was within 1% of its all-time high, reveals a compelling pattern.

The data, sourced from the handle Mist771, indicates that these specific market entry points have historically been beneficial for both US equities and Gold over the subsequent year.

• S&P 500: The average return one year after the cut was a strong 14.2%, with most cases showing double-digit gains. This suggests that the initial rate cut, even near peak stock prices, did not immediately signal a major equity market top, but rather a continuation of the upward trend.

• Gold: Gold's performance was equally robust, with an average gain of 14.6% over the same one-year period.

📈 The Gold Standard: Potential for Outsized Returns

The historical performance of Gold during these rate-cut cycles warrants a closer look, especially considering a unique exception in the data.

The 20-Year Bear Market Exclusion

The reported average return for Gold of 14.6% includes a 20-year bear market period. This period was deemed exceptional because central banks globally were unified in selling their gold reserves under a specific treaty, a condition not currently in place.

Recalculated Upside

By excluding this anomalous 20-year period from the data, the average one-year return for Gold after a rate cut near an all-time high jumps significantly to approximately 30%.

Forward-Looking Scenario

Applying this historical ≈30% gain to current gold prices (around $3,600−$3,700) suggests a potential price target of approximately $4,800 by September 2026, assuming a similar rate cut environment. This projection highlights the potential for substantial appreciation in the price of Gold.

🌍 Asset Allocation: The Emerging Market Contrast

While US equities historically perform well after these specific rate cuts, the data suggests a contrasting performance for Emerging Market (EM) equities.

• Inverse Correlation: Historical correlation shows that when the US cuts rates, EM equities often experience sideways or downward movements. Conversely, EM equities are typically impacted positively when US rates are rising.

• Local Currency Gold Impact: Furthermore, in Emerging Markets, US rate cuts often correlate with an increase in the price of Gold in local currencies, while local equities stagnate or fall.

The Diversification Advantage

This inverse relationship underscores a critical asset allocation insight: a portfolio comprising a combination of Gold and local EM equities can be highly effective. The positive performance of Gold and the flat-to-negative performance of EM equities during US rate cuts provides a natural hedge, creating a more resilient and balanced portfolio than one simply focused on global and domestic equities alone. Asset allocation is key, especially during rate cut cycles.

🎯 Key Learning

Historical data suggests that initial interest rate cuts, when occurring within 1% of an all-time stock price high, have historically been followed by significant positive returns for both the S&P 500 and Gold one year later. 

This points to the importance of maintaining an asset allocation strategy that accounts for both equities and precious metals during such periods.

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