The stock market could have 24% upside after the Fed launches its first interest-rate cut later this year.
Ned Davis research crunched the numbers and found that interest-rate cuts, coupled with no recession, create a very bullish environment for stocks.
“The bottom line is that the stock market has tended to rally in the year after the first cut,” NDR said.
The stock market is poised for considerable upside as the Federal Reserve gears up for its first interest-rate cut since 2019, according to a Thursday note from Ned Davis Research.
Ed Clissold, chief US strategist at Ned Davis Research, crunched the numbers and found that the Dow Jones Industrial Average jumps 15% on average in the first year after the Fed’s first interest rate cut. But those gains are even stronger, at 24%, when the interest rate cuts are coupled with no recession in the economy.
“The Dow Jones Industrial Average has rallied more when a recession has not occurred within a year before or after the first cut,” Clissold said.
The Fed has signaled that it plans to cut interest rates at least three times this year after inflation has moderated considerably from its June 2022 peak. Meanwhile, solid GDP growth and a resilient jobs market has signaled to investors that a recession does not appear imminent, setting the stock market up for solid gains ahead.
If the average 24% gain after the first interest rate cut during a no recession period were to materialize, the Dow Jones would trade to about 47,000. That level lines up with a recent bullish call from All Star Charts’ JC Parets, who said the Dow Jones could surge to 50,000 if the US dollar breaks down.
“The bottom line is that the stock market has tended to rally in the year after the first cut,” Clissold said.
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