What Happens to Shares When Central Bankers Change their Tune

Some people look at the RBA and see a puppet-master, pulling strings to keep the economy dancing a merry tune. We look at it and see an irrelevancy.

Our own opinions aside…if the RBA starts cutting rates, it should mean joy for the share market. All other things equal, of course.

The last cash rate tops haven’t necessarily coincided with a booming All Ordinaries, though. In December 1994, the rate topped out at 7.5%. The index went straight up. But it’s the only textbook example of rate tops meaning market bottoms. In the early 1990s we had a recession despite falling rates. And after the top in August 2000 the market traded sideways for month.

This time could be different, of course. And if history sets it apart from the other examples, it’ll probably be because of a continued drop in the oil price.