Sam Stovall, Chief Investment Strategist at CFRA, breaks down whether another rate cut is a need or a want.
Transcript:
SAM STOVALL: Well, historically wanting is more profitable than having in the 12 months after the last rate hike and before the first rate cut, the S&P gained almost 18% on average going back to 1990. Yet in the 12 months after the first rate cut, the market gained less than 4%. This time around, it’s a little different. The market is up more than 13% doing quite nicely. Possibly because of the pause in terms of rate cuts and allowing investors to build up some excitement for when the next one will come along. So the real question is, is how much does the economy really need it, by how much will the employment picture be slowing and the unemployment rate be ticking higher? So, you know, the question is, will the lower rate cut help spur earnings, or is it really helping to cushion a potential recession?
CAROLINE WOODS: How much do you think the economy really needs it? Because we did see Bank of America research economists come out and say that they’re convinced the Fed won’t cut at all in 2025 due to stagflation. So how concerned are you about stagflation and what could that look like as it plays out in the markets?
SAM STOVALL: Well, stagflation is certainly a possibility, but we don’t think it is the most likely outcome. We’re still forecasting a 25 basis point cut in September, followed by a second in December, with the Fed taking a wait and see attitude at the October FOMC meeting while still forecasting about a 1.8% GDP growth in the third quarter. So a little bit of softness, but we’ll probably see an uptick in the next revision for the second quarter earnings. And then I think we will see about 2% earnings growth for the fourth quarter. So a little bit of softness but certainly not a recession. And I think we saw that earlier this year that bull markets don’t die of old age. They die of fright. And what they are most afraid of is recession. So with us realizing that we are not on the precipice of recession, that’s why we were able to recover all that we lost in only about three months.
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