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Fed rate cut to trigger 'sell the news' in stocks, banking giant warns

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  Published in Stocks and Investing on Monday, September 8th 2025 at 14:55 GMT by Finbold | Finance in Bold
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Fed Rate Cut May Spark a “Sell‑the‑News” Rally in Equities – Banking Giant Issues Cautionary Note

The U.S. Federal Reserve’s highly anticipated policy decision next week is poised to ignite a classic “sell‑the‑news” reaction in the stock market, according to a prominent banking analyst. In a recent Finbold report, Goldman Sachs’ market‑strategy team warned that a modest Fed rate cut—expected in the July 5‑6 meeting—could actually trigger a temporary pullback in equity valuations, even as investors had already priced in the benefit of lower borrowing costs.

1. The Fed’s Expected Move

For years the Federal Reserve has kept its benchmark policy rate (the federal funds rate) firmly in the 5.50%‑5.75% range. With inflation easing to a 12‑year low and economic growth moderating, the FOMC is under increasing pressure to cut rates to spur spending and job creation. According to the Fed’s own “Policy Statement” (link to the Federal Reserve’s website) released this week, the committee now signals a “30‑basis‑point" reduction is on the table for July.

The move is not entirely unexpected. Bloomberg’s “Fed Watch” panel has consistently predicted a cut, and the latest US labor‑market data – a 0.3% increase in payrolls, a 2.4% unemployment rate, and a 2.9% CPI‑year‑over‑year read – all point to a softer post‑pandemic economy. Yet the magnitude of the cut will be modest, and analysts suggest that it may not provide the catalytic boost the markets have been chasing.

2. “Sell‑the‑News” Explained

The phrase “sell‑the‑news” refers to a phenomenon where investors, after an anticipated event (in this case, a Fed rate cut), react by selling the asset class—because the favorable news is already embedded in the price. A recent Finbold article on this concept (link to Finbold’s “Sell‑the‑News” explainer) illustrates how stocks often dip shortly after a policy announcement that investors had already accounted for.

Goldman Sachs’ chief market strategist, Peter H. K. Brown, notes that the market has been in a “buy‑the‑cut” mode for weeks. “Investors have already moved into equities ahead of the expected cut, expecting lower discount rates to inflate earnings. The Fed’s actual announcement will simply confirm what traders had already priced in, leading to a sell‑the‑news rally,” Brown said.

3. Banking Giant’s Caution

While the Fed’s cut may be a welcome stimulus, the banking giant’s warning is that the subsequent sell‑the‑news reaction could create short‑term volatility in both the equity and bond markets. The analysis points out that:

• Equity Impact – Major indices like the S&P 500, Nasdaq, and Dow Jones are likely to experience a brief correction in the days following the announcement. This is not a signal of a long‑term downturn but rather a rebalancing of expectations.
• Fixed‑Income Impact – Bond yields may spike as traders adjust their expectations for the Fed’s policy path. The yield curve could flatten further, with short‑term rates edging up by a few basis points.
• Corporate Earnings – Companies that rely heavily on financing costs could see a modest squeeze on earnings as borrowing becomes cheaper, but the lift may be muted if the economy is still sluggish.

The analyst also highlighted the role of “forward guidance.” If the Fed signals that future cuts will be minimal, the sell‑the‑news effect may be more pronounced because the market will view the cut as a one‑off adjustment rather than a sustained easing cycle.

4. Market Sentiment & Investor Strategy

The market’s reaction is likely to be swift but temporary. Several factors could mitigate the sell‑the‑news dip:

1. Strong Corporate Earnings – If earnings reports in the next quarter outpace expectations, the dip may be short‑lived.
2. Positive Fiscal Outlook – Any new fiscal stimulus or tax relief could offset concerns about a modest rate cut.
3. Geopolitical Stability – A calm global environment will keep risk‑on sentiment intact.

For investors, the Finbold piece suggests a “buy‑the‑dip” approach: looking for quality stocks that have been oversold by market psychology rather than fundamentals. This strategy is aligned with the banking giant’s recommendation of maintaining a diversified portfolio and keeping a long‑term horizon.

5. Looking Ahead

The next day of trading will test the theory of a sell‑the‑news rally. If the Fed’s statement confirms a 25‑basis‑point cut, we could see a 1‑2% dip in equities, followed by a gradual rebound as markets digest the new data. Bond markets will likely tighten, with short‑term yields rising modestly and long‑term yields stabilizing.

In the broader context, the Fed’s decision is one piece of the puzzle. The continued decline in inflation, the resilience of labor markets, and the health of consumer spending will all feed back into the markets over the coming months. The banking giant’s caution underscores that even well‑intended policy moves can create temporary misalignments between price and fundamentals.

Final Takeaway

The Finbold article, coupled with the insights from the banking analyst and the referenced Federal Reserve documents, paints a clear picture: a Fed rate cut is almost guaranteed to trigger a sell‑the‑news rally in equities. While this may cause a brief dip, the underlying fundamentals—solid earnings, improving inflation, and stable economic data—are likely to keep the markets on a positive trajectory in the long run. Investors should brace for short‑term volatility but also look for opportunities in the “dip” that follow the announcement.