No longer just "don't fight the Fed" but "live by the Fed"

Fed activity used to be viewed as a signal about the real economy. If the Fed cut rates, it meant that the economy was in trouble, so you had to careful about holding risky assets. Now, the story seems to be different. A rate cut or lowering rates is now an attempt to help risky assets. As an investor, don't worry about any real economic signal. Central banks are sending a signal or behaving in a manner for asset market support. This does not mean that real effects are unimportant, rather the emphasis is on asset price protection.  Consequently, market behavior has adapted. This is not a new argument, but empirical data supports the change in behavior.

This is seen in the provocative chart from BAML. A large switch in correlation has occurred between the pre and post Financial Crisis periods for a wide set of equity sectors. What used to be negative correlations are now positive.  

Now the switch for many of these sectors have only moved from slightly negative to slightly positive, but it is enough to suggest a major change in market perception. Overall, for  42 markets tested, 39 have seen an increase in correlation for the current decade over the last one. 

Trading against old relationships would have been hazardous for an investor's health. Nevertheless, the change is straightforward. The Fed has both implicitly and explicitly signaled that it will not tolerate investors facing risks. Right now, continue to live off the support of central banks.