Tomorrow could be a big turning point for the market – when the Federal Reserve cuts interest rates for the first time since the financial crisis.
In my writings, I’ve made no secret of the fact that I think this is going to be a major driver for stocks going forward.
My InvestorPlace colleague, Matt McCall has turned up some data that I think you ought to see before tomorrow. Over the past 10 years, Matt has bagged 16 1,000% winners, and is holding a live event tomorrow to explain what he sees coming in the market next.
Below, I’m sharing a full essay from Matt on the topic. I think you’ll see how pivotal his findings are.
***Every day I scan through hundreds (if not thousands) of charts — and there’s one I feel is imperative to share with you today.
In fact, this data caught my eye so strongly that I sent it to my CEO, Brian Hunt, in the middle of the night!
The next day we had lunch and Brian told me that he moved over $350,000 into the stock market after looking at the chart I sent. Naturally I laughed and assumed he was joking. But, he wasn’t.
This is a man who has lived and breathed the stock market for the last 20 years. This is not some amateur investor who is new to the game. I found it fascinating that this one chart was enough to motivate Brian to push a large sum of money into the market. But then again, I should not be surprised because I also have been busy buying stocks since that chart popped up on my screen!
My research is broader than many analysts: I love to travel and put my boots on the ground for face-to-face conversations with company leaders, industry experts, consumers, suppliers or anything else that gives me an edge. I also subscribe to multiple data services so I can sift through the numbers in search of the next great investment opportunity — and this particular one comes to us from LPL Financial:
It shows every time since 1980 that the Federal Reserve (Fed) cut interest rates when the S&P 500 was within 2% of an all-time high.
That’s the situation we’re likely to be in tomorrow — when the Fed announces its latest decision on interest rates at the conclusion of its July policy meeting.
And historically, this has occurred 17 times in 39 years. In all 17 instances, the S&P 500 was higher one year later. Even more impressive was the average gain of 15% in the year after the Fed cut rates.
Much of the time, making an investment decision is difficult and complicated. This isn’t one of them. It’s very simple. Trump knows lower rates will boost the market. He knows a strong market will help him get re-elected. Trump wants to get re-elected. He’ll get low interest rates.
If you are not yet convinced that you need to be in stocks after seeing that chart, here is another…
Fundstrat looked at instances when the Fed cut interest rates during an expansionary period for the U.S. economy, going back to 1971. Every single time, the market was higher three, six, nine, and 12 months later. And the returns were impressive:
One year later, the average gain was 16.5%. A 16.5% return from today would push the S&P 500 above 3,500!
For context, the average 12-month return for the S&P over the last 50 years is about 8%. So, in this particular situation of a rate cut near market highs, we see nearly twice the average returns.
I’ll be covering this phenomenon in my investment services… but this is so important that I decided to go ahead and share it with you now. If there is ever a time to be in the stock market — it is now!
Another thing to keep in mind is that the S&P 500 is already sitting near an all-time high — and the rate cut is highly likely to happen soon. According to the Federal Reserve Bank of Atlanta, the probability of a 25 basis point rate cut by mid-September is 92.2%. Both Citigroup and JPMorgan are predicting a 25 basis point rate cut tomorrow — and Morgan Stanley and UBS are going even further. They expect a rate cut of 50 basis points in July.
Now, while a one-year gain of 16.5% is impressive for the S&P 500…keep in mind that it’s a broad index. Broad indexes by nature contain lots of average and weak companies. I believe high-quality growth stocks in the midst of emerging mega-trends will do much better than the broad market.
These emerging mega-trends include the 5G infrastructure buildout, self-driving vehicles, advanced batteries, the Internet of Things, gene therapy, and cannabis.
If you’re not yet long stocks, get long soon. If you’re already long stocks, get longer.
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