Fueled by Rate Cuts, Is the US Stock Market's Furious Run Far from Over?

Moomoo News Global joined discussion · Sep 20 02:59

The $S&P 500 Index (.SPX.US)$ soared 1.7% to new highs on Thursday, closing just over 5,700 a day after the Federal Reserve announced a jumbo rate cut of 50 basis points. So far this year, the S&P 500 has risen nearly 20%.

Fueled by Rate Cuts, Is the US Stock Market's Furious Run Far from Over?

There is growing optimism in the market that the Federal Reserve's jumbo interest rate cut will deliver a "soft landing" for the US economy. Indeed, stocks have performed well following rate cuts - as long as the economy stayed out of recession. The S&P 500 has posted an average 14% gain in the six months following the first reduction of a rate-cutting cycle, when the Fed cut in a non-recessionary period, data from Evercore ISI going back to 1970 showed.

Wall Street has a new high-water mark projection for 2024

The stock market’s furious run this year is far from over, according to BMO Capital Markets.

BMO Capital markets chief investment strategist Brian Belski boosted his year-end S&P 500 target to 6,100 from 5,600 on Thursday. Belski's target is now the highest among Wall Street forecasts tracked by Bloomberg.

"Much like our last target increase in May, we continue to be surprised by the strength of market gains and decided yet again that something more than an incremental adjustment was warranted," Belski wrote in a note to clients on Thursday.

Belski attributed his bullish view to the Federal Reserve’s shift to policy easing and market participation that has improved beyond the so-called Magnificent Seven technology stocks that up until recently were the S&P 500’s primary drivers.

After Belski, Evercore ISI strategist Julian Emanuel has the second-highest S&P 500 forecast at 6,000.

Fueled by rate cuts, will tech stocks continue to lead the market surge?

The day after the rate cut, tech stocks led a market rally, with $NVIDIA (NVDA.US)$'s stock soaring nearly 4% on Thursday. $Broadcom (AVGO.US)$ and $ASML Holding (ASML.US)$ saw their stock prices jump by 3.9% and 5.12%, respectively. Among the Magnificent Seven, $Tesla (TSLA.US)$ surged over 7%, while $Apple (AAPL.US)$ and $Meta Platforms (META.US)$ climbed by 3.71% and 3.93%, respectively.

Looking back at the last round of rate cuts, the “Magnificent Seven” did not show a significant rebound one month after the rate cut. However, substantial surges were seen over the longer periods of 6 months and 12 months, with Tesla soaring nearly 500% at its peak.

Wedbush Securities analyst Dan Ives stated that the Federal Reserve's rate cut is "the missing piece of the puzzle," indicating that "the green light for high-tech growth trades has been reignited and will continue through the end of the year and into 2025."

Ives also mentioned that while artificial intelligence trades are primarily focused on Nvidia and Microsoft, other companies are starting to get involved. "This includes $Oracle (ORCL.US)$, $ServiceNow (NOW.US)$, $Palantir (PLTR.US)$, $Salesforce (CRM.US)$, $Dell Technologies (DELL.US)$, $IBM Corp (IBM.US)$, $Apple (AAPL.US)$, $Advanced Micro Devices (AMD.US)$, and others," he wrote.

Ives concluded that a dovish Federal Reserve is likely to cut rates further, the likelihood of a soft landing is increasing, and there is a continual surge in tech spending on AI. The combination of these factors means that there is significant upside potential for AI trading.

Source: Reuters, Bloomberg, Yahoo Finance

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