Thank you, Mr. Jerome Powell. This week, the U.S. Federal Reserve Board Chair told investors that the central bank is ready and willing to step in and support the U.S. economy with multiple rate cuts, if need be. By doing so, he put an end to the recent market crash…
And gave folks the signal to buy stocks.
Investors have been on edge for a month now, ever since U.S. President Donald Trump launched a trade war against the nation’s largest trading partners. Given Wall Street’s anxiety about those tariffs’ potential economic impact, stocks were consistently sliding lower.
The White House’s commentary incited even more fear, with Trump and others saying they are willing to accept some short-term economic pain – even a recession – to achieve their long-term economic goals.
Naturally, investors have been very nervous.
But Powell and Co. just quelled those fears, essentially telling Wall Street: “Don’t worry – we’ve got your back.”
And we think this dovishness implies it’s time to back up the truck and buy the market’s dip.
This Dovishness Is Bullish
Going into yesterday’s Fed announcement, many investors were apprehensive that the central bank would shift decisively hawkish.
That is, since the last time we heard from the Federal Reserve, tariffs, federal spending cuts, and policy uncertainty drove significant upside risks to inflation and downside risks to economic growth. The Fed could have easily been hawkish in response, calling for more inflation and less growth – and paring back rate cut projections.
But that didn’t happen.
Instead, the Fed largely maintained its economic projections for 2025, ‘26, and ‘27, with only some minor adjustments to growth and inflation expectations.
It maintained its outlook for two rate cuts this year.
And in the post-meeting press conference, Powell sounded largely dovish. His big-picture messaging was that he thinks the economy will remain solid amid all these policy changes. But if it isn’t, the Fed is ready and willing to step in and save the day.
The Fed Will Come to the Rescue
This reassurance from the Fed is huge.
Wall Street needed consolation that if something goes awry in this global trade war and the U.S. economy starts tumbling into a recession, someone will do something to help.
The White House has already suggested that it won’t. Its motto has remained ‘short-term pain for long-term gain.’
But the Fed has made clear that it’s ready to don its superhero cape. The central bank offered guidance for more rate cuts this year and said risks to the outlook shifted from inflation to growth.
It is also important to remember that the Fed Funds rate is currently at 4.25%. So, if the economy does slow meaningfully in the next few months, the Fed has 17 ‘rate cuts’ it can implement to reinvigorate economic activity.
That’s comforting to Wall Street. The Fed has a lot of ammunition it can use to avert an economic slowdown. And yesterday, it suggested it’s ready to do so if need be.
That’s all investors needed to know to rush in and buy this dip in stocks.
In fact, look at what’s happening as a result…
The Final Word
Stocks have rallied nicely over the last two days and are now up more than 3% from their recent lows. The S&P 500 has retaken its critical 250-day moving average, signalling that the worst of this selloff may be over.
We agree with the market here.
Stocks may have crashed. But the economy remains healthy. We don’t think this is a bull-market-ending selloff; just a run-of-the-mill pullback. Stocks bottomed exactly where they should have (right around the 250-day moving average). And now they’re bouncing back on a powerful upside catalyst (the Fed staying dovish).
We believe this means that the recent stock market crash is likely over… and stocks are primed for a big bounce here.
In other words, it is time to buy the dip.
But where should folks look for the best buying opportunities?
Well, we’re supremely bullish on AI. We believe it’s the greatest technological revolution in three decades. This breakthrough has already created fabulous investment opportunities, allowing investors to lock in ~990% gains in Palantir (PLTR) and 400% profits in Nvidia (NVDA) over the past two years. And so much more is yet to come.
But here’s the rub: the broader AI trade is crowded. That’s why we’ve been hunting for the next big industry breakthrough…
And we’ve found it in what I call AI 2.0 – a development that could be an order of magnitude bigger than anything we’ve seen in the AI Boom so far.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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