XSO and Interest cutsIt's easy to get caught up in all the hype around interest rate cuts and thinking of all the money that will start flowing back into smaller caps and risk assets in general. Taking a look back at the 3 previous periods of easing rates, we can see that this isn't necessarily the case.
This graph is overlaying US cash rates as I believe it's a bit of an early indicator, AUS cash rates will typically follow suit but potentially after markets have peaked. Whilst I do believe that low interest rates are good for small caps, it can clearly be a painful decline before the next leg up. These dips in the market do appear to be bottoming out quicker and quicker but this is mainly due to cash stimulation by the government, ultimately leading back to more inflation.
I don't rule out that this time could play out slightly differently, however it's also never bad to mitigate risk and have appropriate risk measures in place.
