The U.S. Federal Reserve holds its next meeting in less than a week. And considering the state of our nation’s economy, we’re extremely confident that means interest rate cuts are coming in just a few days.
Coincidentally, that also means a major rally on Wall Street is likely about to unfold.
Of course, depending on the underlying dynamics at play, rate cuts can be good – or bad.
When the Fed is proactively cutting interest rates while the economy is still healthy (positive GDP, low joblessness, etc), rate cuts are ‘good.’ Those cuts breathe life back into a sluggish economy and tend to rejuvenate economic activity over the next several months. Stocks usually soar when we get good rate cuts.
Bad rate cuts, on the other hand, happen when the Fed is reactively cutting interest rates in response to an already-troubled economy (weak GDP, high joblessness, etc). Those cuts fail to resuscitate a dying economy, which continues to weaken instead. And stocks suffer as a result.
Since 1990, we’ve experienced six rate-cutting cycles. Three of those cycles were ‘good;’ and three were ‘bad.’
Right now, I want to review one of the good ones – and why it looks so similar to our current economic setup.
1995 Interest Rate Cuts: Looking Back to See What’s Ahead
In July 1995, the Federal Reserve began a proactive rate-cutting cycle.
At the time, the economy was still broadly healthy. GDP measured about 3.5%. Jobless claims were running around 350,000. We had good economic growth and relatively low joblessness.
We have a similar setup today. Right now, GDP is at about 3%. Jobless claims are running around 230,000. Indeed, as was the case in summer 1995, we still have good economic growth and relatively low joblessness. Those 1995 rate cuts sparked a huge stock market rally. In the two years after the first rate cut in July 1995, the S&P 500 surged 66%, while the Nasdaq rose 54%.
1995’s ‘good’ rate-cut cycle helped spark a huge, multi-year stock market rally.
We think a similarly ‘good’ rate-cut cycle will start in just a few days. When it does, it’ll likely help to spark a comparable stock market rally.
And we believe it has the potential to last into 2025 – even 2026.
The Final Word
For the past two months, stocks have been stuck in neutral, without much upward momentum.
But with the Fed’s first official cut coming in less than a week, we suspect you’ll soon see a mad dash toward the markets as traders rush to pile back into stocks.
Therefore, we believe now is a great time to get prepared for this big market rally.
And of course – as is true for most market rallies – some stocks will soar much higher than others.
That’s why I just held an urgent strategy session to help folks prepare for this major profit potential.
But if you missed this session, there’s still time to catch the replay.
Don’t run away from the current market volatility because September is usually a bad month for stocks.
Rather, embrace it. Watch the replay of our special briefing. And find out how to potentially turn this volatility into profits.
Learn how to best prepare for an incoming market melt-up.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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