The Fed’s rate cut could spark a stock market rally in two weeks

The stock market has recently found itself in a bout of volatility – but that could all change in about two weeks when the Federal Reserve cuts interest rates for the first time this cycle.

While S&P 500 is up more than 15% so far in 2024, with nearly all of those gains coming in the first half of the year. Over the past two months, stocks have gone virtually nowhere. During the 4th of July weekend, the S&P 500 was trading at 5540. Today, it is trading at 5520.

Sixty days later. Zero upward progress.

Stocks are blocked.

It could unlock in about two weeks if the Fed cuts rates.

The recent lack of upward progress in the stock market can be attributed to only one thing: recession fears. Economic data has weakened significantly over the past two months, with the unemployment rate rising by about 10%, job openings falling by about 10% and real-time estimates for GDP growth falling by nearly 10%. The economy is clearly slowing down.

But the economy itself is slowing for one reason: high interest rates.

The domino effect that will reignite the economy

High rates have frozen the housing market. They also froze the auto market, the home repair market, and the construction and manufacturing industries. High rates have made it harder to borrow money and more expensive to pay off debt, leading to a major slowdown in consumer spending. They put off big-ticket purchases like travel. And they forced people to save money in high-interest savings accounts.

High rates have slowed the economy.

Therefore, a rate cut will revive the economy.

Sure, a rate cut won’t do much to unlock the housing or auto markets. It will neither revive consumer spending nor create significantly better lending conditions. But there will be 10 rate cuts. And that’s exactly what we think will happen next year.

The current Fed Funds rate is 5.25%. It’s way too big. The current consumer price index – or CPI – inflation rate is 2.9%. We’ll get the latest update on that number next week, and real-time estimates suggest it will drop to 2.5%.

In rate cut cycles, the Fed often likes to cut the Fed Funds rate to at least the rate of inflation. With inflation at 2.5%, that means the Fed will likely cut the Fed Funds rate from 5.25% to around 2.5% over the next year. That means at least 10 rate cuts – which is roughly what the futures market is pricing in for the path of rates over the next year and change.

The Fed is expected to cut interest rates in two weeks at its September meeting. If we’re right, this will be the first of 10 cuts in the summer of 2025.

These 10 cuts will make a difference to the economy.

These 10 Discounts Will Defrost the Housing and Auto Markets. They will revitalize the construction and manufacturing industries. They will make it much easier to borrow money and pay off debt. They will reinvigorate consumer spending. They will force consumers to make large purchases.

They will make a difference.

And that’s why, in about two weeks, stocks will unlock.

The market already knows that the first discount will not happen in isolation. It will be followed by a second cut in November. Then a third cut in December. And the fourth cut in January. So and so on.

The market knows this and as such is just waiting for the first domino to fall. Once that happens with the first official Fed rate cut in about two weeks, I suspect you’ll see a mad rush with traders rushing back into stocks on the idea that a slew of rate cuts are coming, the economy will strengthen significantly, and stocks they will grow.

That’s my take on the current situation.

The Final Word

Stocks have been stuck in neutral for the past two months. I think they are about to wake up in a big way. If I’m right, a lot of money could be made in the markets between now and the end of the year.

And that’s why I’m holding an urgent strategy session next week for people to help them prepare for this major economic event.

We intend to address all of these and more within our framework breaking news Wednesday, September 11 at 8:00 PM ETdesigned to help you prepare for this rare economic dynamic.

A little before 8:00 PM ET, I will send you an email with the subject (The Great Technical Reversal of 2024): Your access link. To join me, just click on the link in that email.

To make sure you get that email, just reserve your seat for my briefing by clicking here.

Most importantly, in this briefing, we intend to reveal a game plan to help you take advantage of this rare economic dynamic.

So don’t run away from the current market volatility as September is usually a bad month for stocks.

Rather, embrace it. Participate our special briefing on Wednesday, September 11 at 8:00 PM ET. And learn how to potentially turn that volatility into profit.

Click here to sign up for my strategy session on how to best prepare for this potential market meltdown.

_{As of the date of publication, Luke Lango did not hold (either directly or indirectly) any position in the securities mentioned in this article.}

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