[Editor’s note: “Why the Fed Will Soon Inspire a Powerful Market Rally” was previously published in September 2024. It has since been updated to include the most relevant information available.]
Last week, August’s frail jobs report really spooked the markets. The data broadly missed expectations, reinforcing worries about a weakening labor market and potential incoming recession. And that led the S&P 500 to notch its worst week in more than a year.
Ouch!
But here’s our take: Don’t stress the recent volatility. Instead, prepare for a massive market reversal – because the evidence suggests one is coming just days from now.
That might sound absurd given how fearful investors are of a potential recession. But it’s important to note that the current economic numbers do not suggest we’re already in a collapse. The U.S. economy continues to add jobs. The unemployment rate remains low. Gross domestic product (GDP) and consumer spending are both still positive.
Rather, the current economic trends are what’s leading folks to believe that a recession is imminent. It’s true that the economy is weakening; no doubt about it. And if these current trends that we’re seeing were to persist, we would fall into a recession.
But we’re confident that, thanks to the Fed, these trends won’t persist.
And better yet, it seems a lasting rally is just around the corner.
The Case for Cuts and a Major Market Rally
This current economic slowdown began in 2022 and ‘23, when the Federal Reserve began hiking rates rapidly, freezing the lending markets. Likewise, the Fed can fix this slowdown by cutting rates aggressively into 2025 and unfreezing the lending markets.
We believe that is exactly what it will do.
Sure, the Fed has been hesitant to cut interest rates over the past year. But the circumstances have changed. Its prior hesitancy stemmed from inflation’s stubbornness and the labor market’s resiliency. Now the labor market is rolling over, and inflation is crashing. In fact, real-time estimates for the Fed’s preferred inflation measure – the Personal Consumption Expenditures index (PCE) – are sitting at 2.1% for September.
That’s right at the central bank’s 2% target.
So… with inflation down to normal levels and the labor market rolling over… we think any hesitancy the Fed previously had about cutting interest rates is now completely gone.
Indeed, recently, multiple Fed officials have said that it’s time to cut. Some even said that they’re open to a jumbo 50-basis-point reduction at their next meeting.
Not to mention, Fed Board Chair Jerome Powell’s legacy is on the line here. He will either go down as a hero – the guy who miraculously beat 9% inflation and guided the economy to a soft landing – or a zero – the guy who held rates too high for too long and plunged the economy into a recession.
With a soft landing achievable… inflation basically down to 2%… labor markets rolling over… and multiple officials already voicing support for rate cuts… it seems exceedingly likely that the Fed will cut rates multiple times over the next year.
The Final Word
And what will all these incoming cuts do? Recharge the economy – and the stock market.
That’s why we believe that this volatile period for stocks – which has lasted for almost two months now as stocks have basically gone nowhere since July 4 – will end very soon.
The rate cuts are coming. A massive market reversal and stock boom are, too.
And with the Fed set to cut on Sept. 18, there isn’t much time to get prepared for the potential gains ahead.
That’s why, this past Wednesday, Sept. 11, I held an important strategy session to discuss what’s ahead for investors. And I unveiled what I believe is one of the best investment strategies to capitalize on a potential major market reversal.
It’s not too late to take advantage!
Catch the replay of that session now and get positioned for the rally ahead.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.
