The first half of September was tough for the stock market. Before the Federal Reserve’s decision on Wednesday to cut key interest rates by 0.50%, the S&P 500 and NASDAQ were down slightly in September, while the Dow was up 0.1%. Following the rate cut, the S&P 500, Dow and NASDAQ gained 1.4%, 1.6%, and 1.5%, respectively, and are now up for the month.
The good news is that the strength should continue as we enter the final trading days of September – and the third quarter, thanks to a phenomenon known as quarter-end window dressing.
Basically, quarter-end window dressing occurs when institutional fund managers make their portfolios “extra pretty” for their clients. To do this, they typically prune the weakest stocks and add many fundamentally superior stocks – like the kind we own in Breakthrough Stocks. This tends to create forced buying pressure and drive stocks higher.
However, the market will face a few key tests.
On Wednesday, we’ll have data on new home sales. Then, on Thursday, we’ll get a look at jobless claims and gross domestic product (GDP). But on Friday, all eyes will be on Friday’s Personal Consumption Expenditures (PCE) index report for August. Economists are looking for the PCE to show a 0.1% increase in August, compared to July’s 0.2% rise, or 2.3% year-over-year jump.
Core PCE, which excludes food and energy, is the Fed’s preferred inflation gauge. And economists will be looking for further progress on this before declaring an outright victory.
The current consensus is for the core PCE to show a 0.2% increase in August, which would be in line with July, or 2.7% year-over-year.
I should also add that we will have multiple Fed presidents speaking this week, which could distract Wall Street. Personally, I will be paying close attention to their thoughts on the recent cuts as well as the state of the economy.
In fact, Minneapolis Fed President Neel Kashkari published an essay stating that he backed a full 1% cut in the Fed funds rate this year.
Specifically, Kashkari said, “The balance of risks has shifted away from higher inflation and toward the risk of a further weakening of the labor market, warranting a lower federal funds rate.”
This is important, folks. Kashkari has been one of the more hawkish members of the Federal Open Market Committee (FOMC), so his change in stance is a big deal.
I suspect other Fed officials will be out and about this week to support the Fed’s interest rate policy.
Overall, I think Wall Street received exactly what it wanted: a big key interest rate cut of 0.5%, dovish comments from the Fed and a positive “dot plot” signaling future rate cuts. All of which are very bullish for the stock market.
This Week’s Ratings Changes
Now, before we dive into this week’s ratings changes, I want to briefly introduce you to my new and improved tool for grading stocks on a fundamental and quantitative basis: Stock Grader (subscription required).
Formerly known as Portfolio Grader, our team has spent months upgrading the entire experience, making it more attractive and more user-friendly.
I’ll plan to spend some time showing you this new-look tool and some of its features in Thursday’s Market 360.
But in the meantime, to help you prepare for what should be a bullish week for the market, I took a fresh look at the latest institutional buying pressure and each company’s financial health. I decided to revise my Stock Grader recommendations for 125 big blue chips. Of these 125 stocks…
- Eighteen stocks were upgraded from a Buy (B-rating) to a Strong Buy (A-rating).
- Twenty-three stocks were upgraded from a Hold (C-rating) to a Buy (B-rating).
- Seventeen stocks were upgraded from a Sell (D-rating) to a Hold.
- Twenty-eight stocks were downgraded from a Buy to a Hold.
- Twenty-two stocks were downgraded from a Hold to a Sell.
- And two stocks were downgraded from a Sell to a Strong Sell (F-rating).
I’ve listed the first 10 stocks rated as Strong Buys below, but you can find a more comprehensive list – including all 125 stocks’ Fundamental and Quantitative Grades – here. Chances are that you have at least one of these stocks in your portfolio, so you may want to give this list a skim and adjust accordingly.
| Ticker | Company Name | Total Grade |
|---|---|---|
| AXP | American Express Company | A |
| CHRW | C.H. Robinson Worldwide, Inc. | A |
| CLX | Clorox Company | A |
| DFS | Discover Financial Services | A |
| EIX | Edison International | A |
| FOX | Fox Corporation Class B | A |
| GIS | General Mills, Inc. | A |
| IBKR | Interactive Brokers Group, Inc. Class A | A |
| IBN | ICICI Bank Limited Sponsored ADR | A |
| ICE | Intercontinental Exchange, Inc. | A |
Profit from the Fed’s Pivot
Now, the reality is that I have been pounding the table for a bigger rate cut for quite some time. And while I’m glad that the folks at the Fed have come around to my way of thinking, I’m even more excited about what’s coming next…
As I have been saying for months, once the Fed begins cutting rates, it will remove a lot of uncertainty from the market. Well, that time has come, folks.
And now, as the Fed “pivots” to a move dovish interest rate policy, it will mark the end of the $8.8 trillion “cash bubble.” That means all of this money just sitting on the sidelines will be unleashed on the market.
Couple this with the fact that we’re in the quarter-end window dressing season, and fundamentally superior stocks should benefit the most.
To get access to my full briefing on this cash bubble – and how you can profit – go here now.
(Already a Breakthrough Stocks subscriber? Click here to log in to the members-only website.)
Sincerely,
Louis Navellier
Editor, Market 360
P.S. We’ve seen chaos in the markets ever since 2020…And despite the relief of last past week’s rate cuts, several headwinds – wars in the Middle East and Ukraine, the election, and more – are still swirling around the markets. That’s why tonight at 8 p.m. Eastern time, my InvestorPlace colleague Eric Fry and a special guest of his are going to sit down to talk about how to prepare for even more chaos to come. This event is only a few hours away. So, click here now to immediately reserve your spot.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Interactive Brokers, Inc. Class A (COO)
