U.S. markets are mostly flat in early Thursday trading after the ECB issued a surprise cut to its main interest rate, lowering it from 0.05 percent to 0.00 percent.
The fifth primary rate cut in Europe since the beginning of 2013 is set to go into effect on March 16. U.S. markets have shown little immediate reaction to the decision, but some traders may be wondering what type of impact that ECB rate cuts have had on U.S. equity markets in the recent past.
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First off, its important to remember that the S&P 500 has been in a bull market now for the past seven years. Therefore, the market has generally produced positive returns over the majority of the 16 month periods in recent years.
However, looking specifically at the past five ECB rate cuts, the S&P 500 has averaged a 0.3 percent gain in the first month following the cut, a 3.5 percent gain in the first three months and a 6.3 percent gain in the six months following the past five ECB moves.
Before traders go out and start scooping up shares of the SPDR S&P 500 ETF Trust (NYSE:SPY), its important to remember that there are countless factors impacting U.S. equity markets, and assuming that European interest rates will be the driving force in coming months could be a misguided assumption.
Disclosure: The author holds no position in the stocks mentioned.
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