The Fed’s interest rate cut yesterday points toward gains for stocks, bonds, and gold. Here’s what our analysts are saying
***A huge “thank you” to everyone who attended last night’s event
First, thanks to everyone who joined us at Matt McCall’s 10X Innovation Summit last night. It was an amazing evening, with more than 35,000 investors signing up.
Matt detailed his proprietary research on the trends he believes are going to drive select stocks to 1,000% returns over the coming years. He then walked through his methodology that details the best way to invest in early-stage, innovative companies.
So far, we’ve received rave feedback from attendees. Even our publisher says it’s the best, most lucrative research we’ve ever put out.
Here’s a brief sample from last night …
***As part of the event, Matt detailed five factors he looks for in his investments — these are factors that are common to 10X stocks
In describing the first factor, he started with a simple question — “Are you hunting elephants or mice?”
In other words, when you’re considering investing in a stock, is the underlying company involved in a huge business that can scale? Or is it a tiny business with limited growth potential?
As an example of a business that would never be a 10-bagger, Matt points toward the company, Build-A-Bear. This retail store helps customers build personalized teddy bears for children.
From Matt, last night:
I’ve been to a Build-A-Bear. And you walk in, you build your bear, and you go home. What kind of business model tells you to come once, you have your bear, it’s a very expensive bear — and never come back? That’s a terrible business model. It’s a very niche business model.
Well, you know, their revenue since 2012 — while everybody’s revenue is going up — is down 20% and the stock, since 2015, is down 75%.
So, that’s a company that went after the mouse.
And just to kind of give you an idea of what happened in retail during that time, Raw stores, Ulta, Beauty, O’Reilly Automotive — three very different retailers, three stocks I’ve picked — have all gone over 1,000% in the same timeframe.
So, you’re going to be hunting the elephants, not those mice.
Speaking of elephants, Matt has recommended 16 different 1,000%+ investments in his career, so if you want to learn from a market veteran, this is your chance.
We know that not everyone was able to attend last night’s mid-week event, so we’re making an encore presentation available.
In it, Matt describes all five 10X factors in detail. Every investor can benefit from hearing how a pro with a proven track record finds the biggest winners. You’ll hear Matt detail the same strategy that has led to gains of 2,563%, 2,040%, and 2,778%. Best of all, he gives away — for free — the #1 stock he believes will climb 1,000% over the coming years.
You can watch the entire event by clicking here.
***We would be negligent if we didn’t mention the other big news story from yesterday
As was widely expected, the Fed cut the federal funds rate yesterday by a quarter point, setting the target rate at 2% – 2.25%.
Following nine rate hikes over the last three years, this was the first rate-reduction since December 2008.
Also significant is that FOMC officials announced they would end the runoff of its $3.8 trillion asset portfolio as of today. That’s two months earlier than previously planned.
As to the possibility for additional rate cuts in 2019, the policy statement released after the meeting left the door open:
As the committee contemplates the future path of the target range for the federal-funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.
So, all good news, right?
Not if you look at the market’s reaction, which nosedived as much as 470 points yesterday afternoon.
You see, despite the official policy statement leaving open the possibility for more cuts, Wall Street was less-than-thrilled after hearing Powell speak. That’s because he said, “We’re thinking of (the rate cut) essentially as a mid-cycle adjustment to policy.”
In other words, it’s not the guaranteed beginning of a new, sustained cutting policy.
***Over the past 25 years, the central bank has switched from raising to lowering rates five times
In the last four cases, the Fed didn’t stop at just one cut.
In 1995 and 1998, we saw three cuts over a period of several months. In 2001 and 2007, the Fed initiated significant and sustained cuts to stimulate our languishing economy. And as you likely recall, the most recent cut from 2008 took rates to near zero then held them there for seven years.
Wall Street wanted more assurance that yesterday’s cut wasn’t a one-off, but instead, was the beginning of another cutting cycle. But Powell explicitly cautioned against that assumption.
From The Wall Street Journal:
But (Powell) also said it was “not the beginning of a long series of rate cuts” because that path is only followed at times of more severe economic distress.
“That’s not our perspective now, or outlook,” he said.
The market didn’t like this, with the Dow briefly sinking 470 points, and ending the day down 333 points.
Of course, as I write on Thursday morning, the Dow is back up 250 points after IHS Markit’s U.S. manufacturing PMI dropped in July to its lowest level since September 2009. Wall Street sees this as supportive of another cut next month.
So, what happens now?
On one hand, here in the Digest, we recently featured a market study by LPL Financial which looked at every time since 1980 that the Fed cut interest rates when the S&P 500 was within 2% of an all-time high — which is what just happened. In short, every time this has occurred, the S&P 500 has pushed higher one year later — with an average gain of 15%.
On the other hand, the market (and Trump, for that matter) clearly didn’t get the news it wanted yesterday, so where do we go from here?
For that, let’s turn to our world-class analysts.
***Let’s start with John Jagerson and Wade Hansen from Strategic Trader
John and Wade are the editors of Strategic Trader. They’re two of the best technical traders in the business, rapidly approaching 100-for-100 profitable closed, put-write trades.
Commenting on the Fed’s rate cut, they began their update yesterday by establishing some context:
(The cut) surprised nobody. A 0.25% rate cut had been fully priced into the market. Many traders were even pricing in the possibility of a 0.50% rate cut.
So, why is this such a big deal?
For the past three-and-a-half years, beginning on Dec. 17, 2015 — seven years to the day the Federal Reserve last cut rates — the FOMC has been trying to raise interest rates to combat potential inflation and give itself some “dry powder” for the future.
You see, when times are good, the FOMC tightens monetary policy by raising interest rates. It does this so that when the economy drops back into a recession, like it always does, the FOMC can stimulate the economy back to growth by loosening monetary policy and lowering interest rates.
Now, what’s interesting about this is that the last time the Fed began cutting rates was in 2007. At that point, the fed funds rate stood at 5.25%. Yesterday’s cut began at basically half that level. In other words, far less room before we reach zero … which means if the economy actually does begin to skid, the Fed has significantly less firepower to combat such a slowdown.
But for the time-being, John’s and Wade’s takeaway is clear:
We’re looking for the S&P 500 to maintain its bullish uptrend into August.
***Neil George also sees the Fed’s rate cut as supportive of more market gains
Neil is a master income investor and the editor of Profitable Investing, so any news affecting rates and yields is especially relevant to his market approach. Given that, he’s been preparing his subscribers for today’s Fed decision for weeks now.
From his most recent Profitable Investing issue:
… the FOMC has pulled back from its hawkish bent on interest rates and should work to influence lower rates for the months to follow …
This means the economy will continue to benefit from lower interest costs, which means lower credit costs for businesses and consumers. It also means lower yields and higher prices for bonds.
In terms of the assets that Neil likes based on lower rates, he points toward interest rate-sensitive investments, including REITs, utilities, bonds, and a new market segment for his portfolios — gold.
As to why these assets could do well, Neil sees a striking resemblance between today and 1995-96.
Here he is to explain:
… this is similar to 1995-1996 when the FOMC also bungled its target rate range, raising three times, only to reverse course quickly.
This led the federal funds rate down, and the bond market rallied. The Bloomberg Barclays US Corporate Bond Index gained 32.70% for 1995-1996. The S&P 500 Index returned 69.05%. And gold rallied from its lows in early 1995 to its highs in 1996 by 11.84%.
As we look forward to the rest of 2019, Neil believes we’ll see more cuts from the FOMC.
From Neil’s most recent update:
Many were looking for the FOMC to do a 50 bps cut including me. And while I’m disappointed in the less cut — it looks like with evidence discerned from Chairman Jay Powell following the FOMC meetings that there is good probability of cuts on September 18, October 30 and December 11 of this year.
The rationale by the FOMC to cut comes as the U.S. economy remains in growth mode including the jobs market and wage growth. But the big driver is that inflation in the US is not only not there — but it has been in decline …
The Fed wants and needs to get inflation from slowing further as it could put asset prices in jeopardy and would negatively impact banks, financials and the overall credit markets.
In Neil’s update, he goes into far more detail about the effect of the cut on the Dollar, bonds, REITs, and more. Even better, he details specific investments he likes as rates fall. Click here for more.
***Finally, Louis Navellier also anticipates continued bullish action in the coming weeks
As the long-time editor of Growth Investor, Louis is legend on Wall Street. Given his “by the numbers” orientation, he lets bottom-line metrics inform his investing decisions. And yesterday’s interest rate cut will definitely have an effect on those metrics.
Louis held a Special Market Podcast last night for subscribers. Here’s his broad take:
If anything, this just means the market is a screaming buy. The S&P dividend yield is very close to the 10-Year Treasury. Anytime this happens, it’s just a screaming buy signal.
Louis goes on to note how this interest rate environment is ideal for stock buybacks — and very bullish for stocks in general. As to what to look for going forward, he also suspects we’ll see another rate cut.
From the podcast:
I think the odds of another rate cut are likely, but the Fed will wait for the economic data as always, so we’ll see what the September inflation data is. If inflation continues to meander lower, we’ll get another rate cut, it’s as simple as that.
So, I’m predicting the 10-year Treasury will be at 1.8%, which is incredibly bullish for the stock market.
Wrapping up, we have three teams of analysts all sharing the opinion that yesterday’s interest rate cut is bullish for stocks over the short/medium term.
For now, the takeaway is clear — stay long.
And again, to watch the encore presentation of last night’s 10X Innovation Summit with Matt McCall, click here.Have a good evening,
Jeff Remsburg
