Where will the market head after the first rate cut? … the key level Luke Lango is watching to determine Bitcoin’s direction … “mass casualties” from AI?
The first rate-cut is just a few weeks away. Once beyond it, what’s in store for the market?
While it’s tempting to look at historical averages, doing so may not be all that helpful because history shows a wide divergence in paths.
Below, we look at the S&P’s three-month performance following the last eight rate-cutting cycles. As you can see, it’s all over the place.
In the bullish camp, we have the relative strength of our underlying economy. Yes, the economy is weakening as we’ve profiled many times in the Digest. However, relative to economic conditions at the beginning of prior rate-cutting cycles, we’re in much better shape.
Often, the Fed cuts rates as a panicked reaction to an obvious economic downturn or some sort of guillotine-like chop/crisis. Though we have plenty of evidence of mounting economic weakness, we haven’t experienced that type of traditional “fracture.”
This suggests that rate cuts will goose both the economy and the markets.
In the bearish camp, we have historical market data about election years. You’re likely aware that September is usually a bad month for stocks. And October can be a wildcard, sometimes great, sometimes awful.
Well, in election years, these two months are brutal.
According to Trend Spider, in election years over the last 25 years, September’s average return is -2.95%, losing value 66% of the time; meanwhile, October’s average return is -3.62%, falling 83% of the time.
While it’s tempting to get caught up in short-term market direction, our hypergrowth expert Luke Lango urges readers to look beyond the next several months
Unless you plan to pull a huge chunk of money out of the market within three months, we shouldn’t put too much weight on short-term direction.
If anything, Luke believes investors should view the potential for market volatility as a buying opportunity for the long-term.
Here he is from his Daily Notes in Innovation Investor:
With the Fed on board to cut rates, the U.S. economy appears well-positioned to achieve a soft landing in the back-half of 2024.
From there, the economy should re-strengthen in 2025 as we move past the U.S. Presidential Election (elections always cause short-term political angst), lower interest rates work their way through the economy, and the AI investment boom continues with vigor. Stocks will charge higher. AI stocks will remain the biggest winners.
The investment implication?
Stay fully invested. Buy all dips. Focus on AI stocks and consumer stocks.
That said, don’t feel the need to rush into this market. Luke shares the same perspective as Louis Navellier that we highlighted yesterday. It reduces to “the market is headed higher but get ready for volatility.”
Here’s how Luke puts it:
We’re very bullish at the current moment.
That doesn’t mean chasing this rally. Always stay patient and vigilant. But it does mean we should be ready to buy any dips as they emerge.
I’ll throw in one final reason to consider buying any upcoming dip. Check out the chart above one more time. But this time, look ahead to the historical returns of November and December…
Now, there’s one asset specifically that Luke believes could be much higher come November and December
Bitcoin.
At the beginning of the month, the grandaddy crypto fell as low as roughly $53,000, frustrating countless crypto investors who had been expecting a roaring bull market in the wake of this past spring’s halving event.
As I write Tuesday, Bitcoin trades at roughly $62,000 after having hit about $63,500 yesterday. And while this 17% – 20% recovery is welcomed, it could be just a drop in the bucket compared with what’s potentially on the way if the crypto breaks a key resistance level.
Here’s Luke with more:
If we do break the current major resistance around $64,000, then it should be “all clear” for a straight-line rally up in cryptos.
That’s because, historically speaking, every time Bitcoin has convincingly taken out the high from the previous boom cycle, it proceeded to soar in an almost vertical fashion over the subsequent few months.
We believe that if BTC does successfully and convincingly clear the mid-$60,000 level in the next few weeks, BTC could go vertical to $100,000 within a few months.
If that plays out, we’re looking at roughly 60% returns by the holiday season.
By the way, if you’re a Bitcoin bear, let me show you a macro chart that you might want to factor into your position.
Below, we’ll look at 2023’s transaction value in Bitcoin compared with Mastercard and Visa.
But before we get there, what’s your guess?
Given Bitcoin’s growing adoption in recent years, will it have transacted at perhaps a quarter of the rate of Mastercard and Visa? Maybe half?
Neither – Bitcoin processed $36.6 trillion of transactions in 2023 which is more than double Mastercard and Visa…combined.
Yes, crypto gains in this halving cycle haven’t materialized yet. But Bitcoin is more popular than ever… its global use is more ubiquitous than ever… and betting against it might be more foolish than ever.
This could be the sleeper trade of the fall. As Luke suggested, keep your eye on that $64,000 level. If we break it on heavy volume, it could mean the long-awaited crypto bull market is waking from hibernation.
Finally, if you’re trying to get a bead on AI investing, as well as what an AGI-driven world even looks like, Eric Fry has you covered
Last Thursday, Eric hosted The Road to AGI Summit. And while the evening centered around the investment implications of Artificial General Intelligence, the commentary on how AGI will change our world was fascinating.
Here’s what Eric’s lead analyst Thomas Yeung recently wrote about it:
I’ll admit that it’s hard to talk about AGI without sounding a little crazy. AI continues to improve at an exponential rate, and describing its potential capabilities borders on speculation.
Thomas points out that some of the manifestations of AGI are obvious, or at least easier to imagine. Think personal assistants that can anticipate what we want. Or quant programs that can design everything from workflows to new pharmaceuticals. Perhaps a chatbot that can write its own novel or movie.
But what’s coming is likely to be far crazier, and the related questions are important to consider.
Back to Thomas:
If an AI becomes smarter than humans, could it potentially develop a new AI that’s even smarter than itself? And what if we develop a way to connect humans with machines, much like how Elon Musk is attempting to with his neurotechnology company, Neuralink?
Some notable futurists – including GoogleAI visionary Ray Kurzweil – believe that AGI will allow us to build nanobots the size of blood cells that can help cure diseases, improve memory, and even prevent cognitive decline. Humans could theoretically then live hundreds, if not thousands, of years.
Then what?
Without death or disease, what stops wealth and power accumulating among the select few? Would dictators rule indefinitely? What role will humans play if machines can do all the work?
Along these lines, there’s currently an AI bill being debated in California that touches on similar societal/existential themes.
Here’s Yahoo! Finance:
The AI safety bill, SB 1047, would put more responsibility on any developer spending more than $100 million to build an AI model.
The requirements include safety testing, implementing safeguards, and allowing the state attorney general to take action against the developer of any AI model that causes “severe harm,” such as mass casualties or incidents causing $500 million or more in damages.
Amazing that we’re now legislating the potential for a technology to inflict “mass casualties.”
For more on this general discussion from Eric (as well as his AGI investment analysis) click here to watch the replay of his Road to AGI Summit. I’m told it won’t be available for too much longer so if you’re curious, I hope you’ll make time to watch it soon.
Have a good evening,
Jeff Remsburg
