Stocks Could See 24% Upside After Fed's First Rate Cut Since 2019, Says Analyst

The stock market is expected to experience a significant upturn following the Federal Reserve’s first interest-rate cut since 2019, according to a recent analysis by Ned Davis Research.

What Happened: The Dow Jones Industrial Average is predicted to surge by 24% after the initial interest rate cut, should there be no recession, reported Business Insider. This forecast is based on the findings of Ed Clissold, the chief U.S. strategist at Ned Davis Research.

Clissold’s analysis indicates that the Dow typically rises by 15% on average in the year following the Fed’s first interest rate cut. However, this increase is even more pronounced, at 24%, when the economy avoids a recession.

“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.

Amid a considerable drop in inflation from its peak in June 2022, the Fed has signaled its intention to implement at least three interest rate cuts this year. The robust GDP growth and resilient job market have also reassured investors that a recession is not imminent, setting the stage for substantial market gains.

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If the anticipated 24% gain materializes, the Dow Jones could reach around 47,000, aligning with a recent bullish prediction by All Star Charts’ JC Parets, who suggested a potential surge to 50,000 if the US dollar weakens.

“The bottom line is that the stock market has tended to rally in the year after the first cut,” Clissold said.

Why It Matters: The stock market has been the subject of intense speculation and analysis in recent times. Joseph Wang, a former senior trader at the New York Fed's Open Markets Desk, has expressed optimism about the stock market’s performance relative to bonds, citing government stimulus and increased consumer spending as driving factors.

Richard Bernstein Advisors (RBA) has also been signaling a potential investment opportunity in the stock market. The firm’s Deputy CIO, Dan Suzuki, believes that the current market signals could lead to a significant shift in investment dynamics. The firm has been predicting a "once-in-a-generation" opportunity for months, and it appears to be on the verge of realization.

Meanwhile, renowned market analyst Jim Cramer has also advised investors to identify and exploit market anomalies, pointing out several instances where the market has defied conventional wisdom, potentially offering lucrative opportunities.

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