Will the Stock Market Crash After the Interest Rate Cut? | Akshat Shrivastava

TL;DR

An interest rate cut does not by itself mean the stock market will crash; past declines around cuts were driven by crises already underway. Markets had anticipated the September 2024 cut for up to one and a half years, while the speaker recommends continuing to invest, building cash hedges, and avoiding overvalued Indian small caps. Read on to understand what past crashes and current valuations suggest.

Transcript

Hi, guys. Welcome to today's video. Let me start  today's video by showcasing this chart. This is one of the most important charts that I will show.  What you would notice from this chart is that there is a relationship between interest rate cut.  For example, this Fed pivot means that the Fed changed the interest rate. This line indicates  the sto... Read More

Key Insights

• Interest rate cuts have historically lined up with market falls in the 1970s, 1980s, 2000 (a 51% correction), 2008, and 2020, which makes the Fed pivot look like a warning sign for equities.
• The market crashes near past rate cuts were driven by an existing crisis, not the cut itself: the dot-com bubble in 2000, the subprime mortgage crisis in 2008, and the 2019 phase, with the Fed cutting to soften those shocks.
• In 2024 there is no crisis blowing up, unlike 2000, 2008, or 2019, so the historical crash pattern should not be assumed to repeat just because rates are being cut.
• Factoring in means the September 2024 cut has been anticipated for one and a half years and is already absorbed by markets, so the actual cut may not trigger a rally when it happens.
• Building cash hedges right now is described as absolutely critical, and the speaker is doing exactly this while rebalancing and realigning his own portfolio.
• This is not the time to stop investing, because no one can predict when a correction starts; the market might rise another 30% before falling 20%, or correct 20% immediately.
• India's base interest rate follows US policy, so when the US raises or cuts rates, India's home, car, education, and business loan rates move in the same direction.
• India's borrowing cost stays very high, with home loan rates near 9-10% versus roughly 5-5.5% in Dubai, and it is likely to remain high even in 2026, which has major implications for the market.

Questions & Answers

Q: Will the stock market crash after the interest rate cut?

A crash is not guaranteed merely because interest rates are cut. The speaker argues that past declines around rate cuts were driven by underlying crises, while no comparable crisis was blowing up in 2024.

Q: Why did markets fall around previous interest rate cuts?

Cuts coincided with market declines in periods including 2000, 2008, and 2020, but the speaker says the cuts were not the underlying cause. Crises such as the dot-com bust and the subprime mortgage and banking collapse were already underway, and the Fed cut rates to soften their effects.

Q: What does factoring in an interest rate cut mean?

Factoring in means markets absorb expected news before the official event occurs. The September 2024 cut had been anticipated for one to one and a half years, so the expectation was already reflected in markets and an immediate rally was not assured.

Q: Should investors stop investing before an interest rate cut?

No, the speaker says this is not the time to stop investing because nobody can precisely predict when a correction will begin. The market could rise another 30% before correcting 20%, or it could correct 20% immediately.

Q: Why does the speaker recommend building cash hedges?

The speaker describes building cash hedges as critical preparation for possible market volatility. He says he is taking cash positions while rebalancing and realigning his own portfolio.

Q: Which assets does Akshat Shrivastava consider overvalued?

He considers the Indian small-cap index overvalued and says its risk factor is higher. He contrasts it with the Russell 2000, which he says does not look overvalued, and notes that he booked profits after a 90% run-up in an Indian small cap.

Q: Why do US interest rates matter to investors and borrowers in India?

The speaker says India typically follows the direction of US interest-rate policy. Changes in India's base rate affect home, car, education, and business loan rates, so US rate decisions can have implications for Indian markets and borrowing costs.

Q: How high were US interest rates before the announced September 2024 cut?

The US base lending rate had risen from close to 0% around 2014 to a peak of 5.5%. The speaker says Jerome Powell announced that cuts would begin from September 2024 after inflation had been tamed.

Summary & Key Takeaways

• A chart of Fed pivots shows interest rate cuts coinciding with market falls across the 1970s, 1980s, 2000, 2008, and 2020, including a 51% correction before 2000. Jerome Powell announced US rates will be cut from September 2024, raising the question of whether the market will fall again.

• The crashes near past cuts were caused by crises already underway: the dot-com bust in 2000, the subprime mortgage and banking collapse in 2008, and the 2019 phase. The Fed cut rates to lessen those shocks, so the cut did not cause the fall. In 2024, no such crisis is blowing up.

• US rates rose from near 0% around 2014 to a peak of 5.5%, and consensus sees roughly 5% in 2024, 4% in 2025, and 3% in 2026. India's borrowing costs stay high. Investors should build cash hedges, keep investing, and exit overvalued assets like Indian small caps.