How lower interest rates can lead to surging markets

The last year has been an eventful period for markets around the world, what with trade anxiety and economic growth dominating the headlines. But another point of significance has dictated the flow of capital through equity markets. This relates to monetary policy, and principally, the trajectory of interest rates.

A cursory glance at markets during the final months of last year shows investors fretted over hawkish rhetoric from the Fed and its decision to lift rates in quick succession. Indices entered bear market territory, only to reverse course when Jerome Powell signalled this stance would be eased. Since then, markets have surged ahead of expectations this bias may pivot towards the first of a series of rate cuts in over a decade. But this isn’t an isolated phenomenon, with history showing rate cuts have helped lift indices.