FED pivot, inflation or stock pivot?

There has for a long time been a talk about the FED pivot. A Fed pivot occurs when the Federal Reserve, reverses its policy outlook and changes course from expansionary (loose) to contractionary (tight) monetary policy—or, conversely, from contractionary to expansionary. That is important for the stock market as long as the interest rate is the discount factor in the stock valuation formula. The interest rate enters the denominator of the terms in that formula. When the interest rate increases (decreases) these terms decrease (increase) and the stock is repriced as the present value of discounted cash flows. So ceteris paribus the stock price decreases when the interest rate (discount factor) increases. The stock price increases when the interest rate decreases.





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