On Thursday, many investors were baffled by the price action in the S&P, which traded in the red, despite catalysts that should have been bullish.
Bulls have been calling for rate cuts, saying central banks around the world needed to get more aggressive in their attempts to keep the global economy growing.
And on Thursday bulls got what they wanted – on many fronts:
- China's central bank cut interest rates for the second time in two months on Thursday.
- The ECB cut its main interest rate to a record low of 0.75 percent and its deposit rate to zero.
- The Bank of England launched a third round of monetary stimulus, saying it would make 50 billion pounds of asset purchases.
All things considered, shouldn’t the market have rallied?
Dan Greenhaus, Chief Global Strategist at BTIG tells us not all rate cuts are created equal. “There are good rate cuts and bad rate cuts,” he says.
These were bad rate cuts. Here’s why.
The knee-jerk reaction from pro investors is to interpret cuts as a sign of something bad. And unless there is a downstream catalyst to make them optimistic, Greenhaus says they won't buy risk assets such as stocks.
To support his thesis Greenhuas points to the price action in the S&P about a decade ago. “During 2001 and 2002, the Fed cut rates and the S&P fell,” he reminds.
Greenhaus thinks the environment is very similar.
That is, rather than triggering optimism, rate cuts will be interpreted as “The economic landscape is worsening and earnings expectations are coming down,” he says.
Posted by CNBC's Lee Brodie
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Trader disclosure: On July 5, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Josh Brown is long XBI; Josh Brown is long JPM; Josh Brown is long COP; Josh Brown is long AAPL; Stephanie Link is long JPM; Stephanie Link is long DD; Stephanie Link is long TJX; Stephanie Link is long DVN; Simon Baker is long AKS; Simon Baker is long GLD; Simon Baker is long WFC; Simon Baker is long JCP; Simon Baker is long GLW
For Jason Raznick
Jason Raznick is long AAPL
Jason Raznick is long MSFT
For Paul Richards
Nothing to Disclose
For Dennis Gartman
Dennis Gartman is long Corn
For Brian White
No part of the compensation received by the analyst principally responsible for the preparation of this report was, is, or will be directly, or indirectly, related to the specific recommendations or views contained in this research report.
For Dan Greenhaus
Dan Greenhaus is long GLD
CNBC.com with wires.