So take this with a grain of salt as I’m just a random guy on the internet. But I’ll lay out the following reasons why I believe we’re going to have a massive rally.
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Earnings are strong and are expected to be strong going forward. Of course, this could change but regardless it’s the consensus at the moment.
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There is a surprising amount of bearishness in the market despite the fact that we’re at ATHs. You’re hearing people talk about seasonal weakness in Sept/Oct everywhere, AAII investor sentiment saw bearishness at 31% in the last survey which is exactly the historical average. This is quite strange given the market is at ATHs. I believe that many people are offsides and will chase.
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The Fed’s decision to cut 50bps today. Lower interest rates help rate sensitive segments of the economy, help rate sensitive companies (small caps, REITs, private equity, etc.), and lower the hurdle rate for stocks. When the risk free rate is lower, investors don’t need as much expected return from stocks to justify buying them.
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That ties into my next point, the “$6T of cash on the sidelines”. As rates come down, some of that money will find its way into stocks. I’m already seeing a lot of chatter about people wondering if it’s time to take money out of their HYSA and buy stocks.
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It’s an election year, and post-election season tends to be extremely strong for stocks historically. This of course could be different since it’s such a polarizing election.
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Despite what many believe, valuations are not that high. The forward P/E for the S&P 500 right now is 22.5x, which is actually the lowest it’s been since Q3 2022.
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The AI hype seems to be pretty dead right now. If we get anything major on that front in the next 3 months, that could add fuel to the fire.
Of course, this is all conjecture. And there’s still a lot of uncertainty around the economy. But I think the conditions are ripe for a massive upside move in stocks.
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