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The Fed's rate cuts will provide some respite for companies struggling with soaring borrowing costs. However, historically, rate cuts have not always been good for stocks.

Zhitong Finance APP learned that Andrea Cicione, head of research at GlobalData and TS Lombard, pointed out that it depends on whether the economy is about to fall into recession. Cicione wrote in a report to clients on Friday: "Lower interest rates are usually a response to an economy heading towards a recession."

To better illustrate this, his team tracked the performance of the S&P 500 during the Fed's rate-cutting cycles from 1984 to 2019. The data showed that stocks typically rose in the days following the first rate cut. However, when the economy began to contract, stocks also began to decline in the weeks after the first rate cut.

After a turbulent week, stocks rose on Friday, with the S&P 500 up 0.47%, the Dow Jones Industrial Average up 0.13%, and the Nasdaq Composite up 0.51%. The "fear index" (CBOE Volatility Index) surged during the week, and global stocks plunged on Monday as investors suddenly unwound yen carry trades. In addition, a weak July jobs report also put more focus on the resilience of the US economy.

While a recession could hit the stock market, Cicione noted that investors may still benefit from holding bonds when a recession occurs because bonds have outperformed stocks on average during recessions.

On Friday, the 10-year Treasury yield was 3.94% after falling to 3.78% earlier this week, its lowest level in more than a year. “When recessions are avoided, however, stocks tend to outperform bonds over the long term,” he wrote.