When the Fed cuts, buy these stock pools through Investing.com

As the Federal Reserve is expected to cut rates on September 18, Evercore ISI analysts have identified key groups of stocks that could outperform during the easing cycle.

According to their note, the “high redemption factor” has been a consistent winner in all Fed tapering cycles since 1990, regardless of whether tapering is driven by a soft or hard landing.

Analysts recommend focusing on companies that engage in significant share buybacks, as these actions tend to generate long-term strategy alpha during rate cuts.

Momentum shares are also expected to outperform, especially given seasonal volatility in the fall of 2024.

Evercore states that “momentum was the best driver of performance in the first half of September” and typically manages seasonal volatility better than other factors.

The firm adds that historically, momentum stocks have outperformed 76% since September 1990, and that pattern is expected to continue, especially in the current environment of rate cuts and political volatility in the run-up to elections from the USA.

Analysts looked for potential performers in the Russell 3000, highlighting software companies such as ACIW, APP, BOX and YOU, which are well-positioned to benefit from future rate cuts.

The report also suggests that these seasonal tactics could evolve into a broader “soft landing strategy” as the economy shows resilience, just as it did during the 1995 soft landing.

Ultimately, Evercore ISI advises focusing on high buyback and momentum stocks to capitalize on the Fed’s rate cuts and the resulting market dynamics.