Why stocks “could absolutely go up” from here

Huge Market Uncertainty Cleared… Louis Navellier Says ‘Turbo Boost’ Is Here… Why Luke Lango Thinks It’s 1998 Again… A Trading Course From A Pro

In yesterday’s Digestprovided our view on the Fed’s 50 basis point rate cut as we begin the first rate cut cycle of 2020.

Today, let’s get the scoop from two of our experts.

We’ll start with legendary investor Louis Navellier and yesterday’s Flash Alert podcast Growing Investor:

The Fed came in and cut key interest rates by 50 basis points. There was only one dissenting vote – the Fed’s first dissenting vote since 2005…

The Fed has also signaled it will cut another 50 basis points this year. So it’s probably 25 basis points at their November FOMC meeting and another 25 basis points at the December FOMC meeting. Then another three-quarters of a percent will cut in 2025.

So incredibly optimistic.

In Louis’ Weekly Update in AI advantageprovided more color on how the Fed balances downside risks to inflation with upside risks to the labor market:

For months now, it has been assumed that the Fed will “play it safe” and cut key interest rates by 0.25%. But as inflation data improved – and labor data worsened – calls grew louder for a 0.5% cut…

The Fed is no longer worried about inflation. The Fed’s preferred measure of inflation – the core component of the personal consumption expenditures (PCE) index – has been running at an annual rate of 1.7% over the past three months. And that’s well within the Fed’s 2% annual target.

The reality is that its goal of achieving 2% inflation is almost achieved. In fact, Fed officials are projecting an inflation rate of 2.6% at the end of the year and 2.2% next year.

Instead, the concern now is related to the labor market. The unemployment rate rose to 4.2%, up significantly from 3.4% just 16 months ago.

Returning to Louis’ podcast, he pointed out that yesterday’s decision removes a major uncertainty from the market. The only question mark left is the presidential election.

However, despite the potential for volatility that November 5 presents, Louis’ bottom line is bullish:

We’ll see how it all shakes out and we have a long way to go (until the election) … but we’re looking at (yesterday’s Fed news as) incredibly bullish.

So enjoy the ride folks. This was very, very impressive… I think this was an incredibly optimistic event…

In conclusion, these rate cuts will serve as a long-awaited “turbo boost” not only for the stock market, but also for the US economy.

Our hypergrowth expert Luke Lango shares Louis’ optimism

In yesterday’s issue of Investing in hypergrowthLuke began by commenting on the size of the cut:

The big news here, of course, is that the Fed cut interest rates by 50 basis points (bps). That’s unusual.

The central bank typically cuts in 25 basis point increments. Jumbo 50bp moves are rare, usually reserved for when the Fed wants to really support the economy.

In other words, with (yesterday’s) jumbo cut, the central bank is making it clear that the US economy has its full support…

Luke’s following has expanded to his analysis of Federal Reserve Chairman Jerome Powell and his live Q&A commentary:

And in the bank’s post-meeting press conference, Fed Chairman Jerome Powell sounded very accommodating. He expressed that if the economy starts to weaken unexpectedly, the Fed will cut interest rates even more aggressively than forecast.

As for the impact on stocks and the economy, Luke didn’t hold back:

In our view, this bold move opens the door for stocks to spend like it’s the 1990s all over again.

Behind Luke’s optimism is not just yesterday’s rate cut, but also the string of cuts the Fed highlighted on the Dot Plot

As I noted in yesterday’s DigestThe Dot Plot is a graphical representation that reflects each panel member’s anonymous projection of where they think rates will be at certain dates in the future. Fed members update the Dot Plot once every three months.

Here is Luke’s economic/market prediction based on the updated Dot Plot:

As the dot plot shows, the Fed will steadily cut rates over the next year or two.

Indeed, in the updated Summary of Economic Forecasts, the Fed indicated more rate cuts this year…more rate cuts next year…and more cuts the year after. In total, the Federal Reserve projects another seven to eight interest rate cuts over the next two years.

Collectively, these cuts will help revive the economy.

Mortgage rates will collapse, reviving pent-up home buying demand and thawing the housing market. Auto finance rates will also drop, reheating the stalled auto market. And debt costs will fall, causing both individuals and institutions to borrow and spend more money.

In other words, it looks like the economy is about to bounce back in a big way. As it does, so should the markets.

Focusing on stocks, Luke believes we are now heading for a meltdown parallel to what we saw in 1997/1998.

Older investors will remember the late 1990s when the economy and market were performing well, fueled by Internet technology stocks. However, starting in the summer of 1998, the economy began to slow down.

Stocks, always looking ahead, began to sell off, fearing a recession. In response, the Fed came to the rescue with rate cuts.

Here’s Luke with the result and the parallel to today’s market environment:

Over the next 18 months, stocks – led by tech stocks – rose absolutely. In fact, the Nasdaq 100 rose more than 300% from its trough to its peak (late 1998 to early 2000).

And it looks like history is repeating itself right now.

Throughout 2023 and into 2024, the stock market and economy performed well, fueled in part by AI investment tailwinds. Then, in the summer of 2024, the economy began to slow and the stock market began to lose its footing.

The Fed rode to the rescue with rate cuts…

We expect stocks to rise over the next 18 months – driven by tech stocks.

Therefore, we come away from the Fed meeting (yesterday) feeling very optimistic.

Luke makes it clear that this doesn’t mean we should expect a constant upbeat level with no downsides

As I write Thursday morning, stocks are exploding higher. But history suggests we should brace for more near-term volatility.

As usual, Luke crunched the numbers, looking at historical market data following rate cuts. What he found was that — despite today’s gains — we often see stocks underperform in the first month after the Fed starts cutting rates.

But Luke urges his readers not to misinterpret. As long as we avoid a recession, market performance beyond the first month has been positive:

Here is Luke’s chart with these details. The market’s three-, six-, and 12-month periods turn positive when the economy avoids a recession:

Putting it all together, both Louis and Luke walk away from yesterday’s rate cuts with one main statement – be optimistic

But I’ll let Luke do this directly:

Folks, we think the greenest shoots may be ahead.

The next 12 to 24 months could prove to be fantastic for the markets…especially for technology and AI stocks.

Most evidence suggests that in the next few years we will get the ultra-strong and ultra-rare combination of falling interest rates and rising earnings.

As long as this momentum persists, stocks should continue to rise, led by the biggest earners — which, as of now and likely for the foreseeable future, are tech stocks…

Let’s get ready for that rally and pile into AI stocks with the highest growth potential.

Before I wrap up, a quick note…

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good evening

Jeff Remsburg