Why did the market still fall despite the interest rate cut?

This morning, the Federal Reserve announced a 25 basis point rate cut, lowering the federal funds rate range to 4.00%-4.25%, and clarified that quantitative tightening (QT) will end on December 1.

In theory, interest rate cuts and halting balance sheet reduction are positive, which can improve liquidity expectations, but the stock market, cryptocurrencies, and gold have all fallen sharply. The core reasons are four:

1. Positive news anticipated in advance: At the beginning of this month, the market had already bet on an interest rate cut. CME FedWatch data showed that the probability of a 25bp cut before the meeting reached 95%, with about 40% of investors also expecting the initiation of QE (expansion of the balance sheet). Ultimately, the Federal Reserve only made a "mild" rate cut, which was below expectations, triggering a "buy the rumor, sell the news" reaction, leading investors to take profits.

2. Tapering ≠ Easing: Most people regard "the end of QT" as "massive easing", but the Federal Reserve clearly states "ending tapering, no new asset purchases for now". The market shifts from "liquidity withdrawal" to "wait and see", with liquidity only "no longer deteriorating", lacking substantial improvement, while asset price increases require "incremental funds", which is precisely the gap.

3. The interest rate cut has not been transmitted to the actual interest rate: In theory, cutting interest rates lowers the short-term rates and reduces funding costs, but after this nominal rate was cut by 25 basis points, medium- and long-term rates have increased - the yield on five-year government bonds rose from 3.6% to 3.7%, and the ten-year broke 4%. The market's real liquidity remains tight, and institutions do not feel that "money has become more abundant"; the interest rate cut exists only at the policy level and has not entered the market.

4. Interest rate cuts reveal economic concerns: This interest rate cut is a "defensive operation" by the Federal Reserve. Recently, the U.S. economy has been under pressure: the real estate and manufacturing sectors have experienced two consecutive quarters of negative growth, employment is slowing, and the unemployment rate has risen to 4.6%, with corporate profits nearly stagnating. The market assesses that "the economy may enter a period of mild recession," and to avoid risks, investors are willing to lock in profits and are cautious about adding positions in risk assets.

Summary

Short-term policy easing ≠ sufficient liquidity ≠ asset rise. Only the central bank's restart of QE (expanding the balance sheet), or fiscal stimulus leading to large-scale capital inflows, can drive the reversal of the stock market and the crypto market. Previously, interest rate cuts were only "neutral to warm," stabilizing confidence but difficult to ignite a bull market — the market needs "real water release," not a small 25 basis points cut; risk assets still need clear signals.
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