US stocks (^GSPC, ^DJI, ^IXIC) rose after Federal Reserve Chairman Jerome Powell suggested a rate cut was likely in September, spreading further optimism in the market.
Brett Kenwell, US Investment Analyst at eToro, appears on Wealth! to provide insight into the broader market situation amid growing optimism over interest rate cuts.
Kentucky believes Powell “delivered exactly what investors were hoping for.”
Kenwell believes that while markets may be stable in the long term, some short-term difficulties are to be expected. “I think it’s natural for the stock market to go into a gradual pullback or lull, given how suddenly things have changed since the start of August. Volatility spiked and the stock market crashed to a low on Monday, August 5th. Since then, we’ve seen a very strong rally. The S&P is back within 1% of its all-time high. It’s up 10% in less than three weeks. That’s a very strong run, so I wouldn’t be surprised if we see a bit of a consolidation period.”
For more expert insights and the latest market trends, click here to watch this full episode of Wealth.
This post was written by Nicholas Giacobino
Video Transcript
Optimism is growing on Wall Street about the path to lower interest rates.
Federal Reserve Chairman Jerome Powell says it’s time for the central bank to start cutting interest rates. Read more about what this means for your portfolio here.
Let’s get started.
The Toros.
Investment analyst Brett Kewell joins us to talk about Brett.
I invite you to read what we heard from Fed Chairman Jerome Powell and what it means for the portfolios of those who are accurately assessing which assets need to be rotated.
Yes, thank you for inviting me.
And as for Chairman Powell’s comments this morning in Jackson Hole, I think they were exactly what investors were hoping for.
He made the Fed’s monetary policy position clear.
The story continues
He said he had essentially laid out the path to lower interest rates in September.
And as it turns out, that’s exactly what investors wanted to see.
There’s perhaps some hope that he will reveal his cards about the size of the Fed’s first rate cut, but that’s unlikely.
I think we all obviously knew that this was unlikely to happen, and apart from that, he told us exactly what we needed to hear today, with that in mind.
So, as we continue to try to figure out what the Fed rate cuts and rate cut policy will mean for investing, is there a strategy?
And I heard today that there is a dominant recession type strategy or playbook that people should have in their back pocket.
From your perspective, what does that actually mean?
Well, that’s an interesting question.
You know, when you look at the market today across different time frames, there are clearly headwinds and there is clearly uncertainty in the short to medium term.
Well, it goes beyond just investors thinking about interest rates, it extends to geopolitics overseas.
And that extends to, you know, the upheaval we’ve seen in the presidential elections across the country.
So, you know, when you take into account some of those factors, and even more importantly, concerns about the economy and the labor market, which have obviously abated, but I would hesitate to say they are weak.
Well, you know, that’s our biggest concern right now, but we’ve got some clarification from the Fed, which came out today, and I think that’s a good thing.
But in the short term, there are certain concerns and there is uncertainty.
But over the long term, the foundations for this bull market remain in place, with earnings growth on the S&P 500 Index remaining strong.
As we know, earnings growth in the second quarter is approaching double digits, which is the best quarterly growth since the fourth quarter of 2021. Double digit earnings growth is expected in five of the next six quarters, and this, along with monetary policy, is what is driving the stock market.
So, in the long term, I think the big picture still favors the bulls.
So with that in mind, I mean, this is something that the market was craving and you made a note of this as well.
So, if this is what the market has been yearning for, then it’s a good question: what sectors should investors expect to outperform now that this turnaround has happened?
I think it would be reasonable to see some sort of gradual pullback or pause in the stock market based on the idea that it was really sudden in August.
Well, volatility increased significantly and the stock market fell significantly to its lows on Monday, August 5th.
Since then we’ve had some really big gatherings.
S and P are back within 1% of visibility.
It rose 10% in less than three weeks.
That’s a very powerful move.
So I think it makes sense to have a little bit of a consolidation period going into September with the headwinds that I mentioned earlier. September has historically been the toughest month for the S&P over the last decade. So I wouldn’t be surprised if there are some potholes along the runway, but I still think the runway is long.
And, you know, as we think about lower interest rates going forward, I still think we’re going to go back to the group that does well in lower interest rates, which is small caps, and do well.
So far this year, utilities and real estate have been the two best-performing S and P sectors.
The idea behind this is that the Fed will lower interest rates.
So even technology companies, I think we’ll group together into mega-cap names, are likely not as sensitive to interest rates because they essentially have enormous cash flows and strong balance sheets.
But if you look at high-quality, high-growth technology, specifically, which is more sensitive to interest rates;
I think some of these stocks could really benefit in the coming quarters.