Newton's first law of physics states that an object that is in motion will stay in motion until acted upon by an outside force.

 

I bring up Newton's first law because we often receive phone calls from clients asking why they should invest in the market when it's at or near an all-time high. The answer to that question is in the chart below. When markets start to make highs, they tend to keep making them. In this way, the market often appears to follow the same logic as Newton's first law. When the market is making new highs, it will continue to make them until some outside force interrupts the trend.

 

This week, the Federal Reserve in the United States cut interest rates by 1/2%. This is a significant cut by historical standards, and it could definitely be described as an outside force acting upon the market. However, history tells us that this outside force is likely to add fuel to the fire and make the market go higher. As mentioned in previous notes, interest rate cuts lower the cost of debt for companies, increase their earnings, and increase borrowing activity. As far as the market is concerned, this "outside force" (Federal Reserve cutting interest rates by 1/2%) is a positive and should help the market go higher – at least in the short term.

 

 

 

 

I have also included a report from our CIBC Economics team entitled “The meaning beyond the median”.

 

As always, if you have any questions, please feel free to give us a call at any time.

 

Have a great weekend.

 

Milan