Wells Fargo: After the Fed rate cut, the stock market will see a once-in-30-years surge
Paul Christopher, Global Head of Investment Strategy at Wells Fargo, stated that if the Federal Reserve cuts interest rates in September, it will usher in the largest stock market rally in 30 years. He believes that the market environment is similar to that of 1995, with the U.S. GDP growing at 2.8%, inflation decreasing, which is favorable for an economic soft landing. It is expected that financial and technology stocks will benefit, with financial stocks leading the way after a short-term interest rate cut, followed by technology stocks. Despite possible market volatility in the coming months, rate cuts can bring significant returns to investors
Paul Christopher, Global Investment Strategist at Wells Fargo, stated that the US stock market is poised for an unprecedented rally in the past 30 years.
The seasoned banker pointed out that the current market resembles that of 1995 when the stock market was booming, and the S&P 500 index hit 77 historical highs.
Christopher believes that investors may face a similar environment. He said this is because inflation is decreasing, the economy is "not collapsing," and the US Department of Commerce estimates a year-on-year GDP growth of 2.8% in the second quarter.
Christopher told CNBC on Thursday that the Federal Reserve is "in a favorable position if they can be proactive enough."
He believes the Fed will cut rates by 50 basis points in September and then cut rates "several times" before the end of the year. He added, "We still have a good chance of achieving an economic soft landing."
Since the Fed began raising rates in March 2022 to curb inflation, the market has been watching for when the Fed will cut rates. The current US inflation rate is far from the peak in the summer of 2022. According to the Bureau of Labor Statistics, inflation in July rose by 2.9% year-on-year.
Christopher noted that geopolitical tensions and the upcoming presidential election have brought uncertainty, and Wells Fargo expects the stock market to be more volatile in the coming months. He added that if the Fed appropriately eases policy, investors may see significant gains during this period.
He believes lowering short-term rates is most likely to benefit financial and technology stocks as financial institutions will have more deposits, and tech companies' profits will improve. He said these two trends are "strikingly similar to the situation in 1995."
Christopher stated, "Financial stocks will lead until tech stocks take over, and then the market will experience widespread cyclical fluctuations." He added, "In the industries I mentioned, we will definitely be overweight in large-cap stocks."
With investors focusing on Fed rate cuts and the strength of the US economy, most stock forecasters expect more volatility in the coming months. Economists at the New York Fed stated that they believe there is a 56% chance of the economy entering a recession by July next year.