Fed Cuts Rates 0.5%. What's Next for Stocks?

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Transcripts

so on Wednesday the Federal Reserve

finally made their first interest rate

cut in 4 years and they cut interest

rates by 50 basis points or 5% a lot

larger than what most banks expected so

what does it mean for the markets and

for you let's find out in this

[Music]

video so as we all expected the FED

finally cut interest rates and most

banks actually predicted that they'll

cut by 25 basis points but if you look

at the Futures Market the CME Futures

Market there was a 60% probability they

will cut by 50 basis points or 0.5% so

the fact that they cut by that amount uh

most Market participants actually

expected it now what's interesting is

that initially after the cut the market

didn't go up the market went down

initially maybe people were thinking oh

the last time the FED cut rates the

market crash oh right and it sold

everything okay but the next day the

market rough back and the market had a

huge gap up because people are now

thinking wait a minute cut rates good

right they started buying like crazy

okay now so bear in mind that they cut

rates from

5.5% which is the high end of the range

to 5% So based on history the F funds

rate is still relatively

High given that inflation has now come

back down to about 2 .5% going towards

2% a Fed funds rate of 5% is still very

restrictive so the eventual goal for the

FED is to bring the rate down to about

3% and that will take about one or two

years depending on uh the incoming data

right so understand that the end goal

right now for the fed and again this

could change any time but the end goal

right now for the FED is by the end of

this year they're going to have two more

rate cuts of 25 basis Points each .25%

each and the the the range of the rates

will come down to 4.5% by the end of

this year and by the end of next year

you'll come down to

3.5% and then eventually by 2026 it it

should go down to 3% with r coming down

this is not very good news if you have a

lot of your money in the savings account

or time deposit account your interest

will be dropping but this is very good

news if you have been buying dividend

stocks and reads they have come roaring

back with lower interest rates and this

is actually very bullish for stocks as

well now again people get very confused

because they read in some places that

when the FED Cuts rates stocks drop then

they read another article that says when

stocks when when the FED Cuts rates

stocks goes up so you know which is

correct and the answer is they are both

correct it depends on the environment in

which the FED Cuts rates in so in other

words if you look at history every time

the FED Cuts rates because the economy

is in a recession they cut rates to save

the economy then that is related to a

market crash but at the same time they

also many instances in the past when the

FED cut rates when the market was at an

all-time high like now the FED cut rates

when the economy is still very strong so

in those situations they cut rates not

to save the economy but to

normalize the interest rates because

when they took the interest rates from

uh 0o to 5% that was abnormal because of

high inflation but now they normalizing

interest rates and that is very bullish

for the stock market specifically

certain sectors moving forward as I've

spoken about and that's why the market

realized that the morning after and

that's why stocks came roaring back okay

and I did a post on it on my social

media pages and I said you know this is

why it's so important to stay invested

in the markets and in high quality

stocks and not be scared Away by all

kinds of short-term macroeconomic news

when people say oh when the FED Cuts

rates the market will crash when

recession is coming there's inverted Yi

curve the Yi curve is uninverted there's

a rising unemployment rate elections are

coming blah blah blah and when people

listen to all these narratives they get

very very nervous and so a lot of people

when they first saw that the market came

down on Wednesday they freaked out and

they sold their stocks or wor they

shorted the market and the next day when

the market came back they missed out on

those gains in your portfolio or huge

losses when they shorted the market so I

did a screenshot of my account just to

show my students I say you know what in

one day in that one day my account is up

like about total

$150,000 in one day now the point to

show them that is to say that you never

know you never know when those big up

days will come when those very bullish

days could come and that's why it's

really important to stay invested in the

markets the trouble is that when you try

to predict the market like oh crash is

coming uh so I better sell first and

then after the crash I buy back and the

trouble of doing that is that by trying

to avoid the worst days you invariably

miss the best days in a market and I've

shown This research before that over a

10 to 20 year period if you just missed

the best five days in the market you

were out of the market or you shter the

market that would significantly reduce

your results in the long run and that's

one of the things I've learned investing

for so many years is that don't try to

predict the market don't try to outsmart

the market just stay invested into the

market in good quality stocks right

through the ups and downs and you will

outperform everyone else very very

easily I got a feeling that some people

lost a lot of money you know shorting

the market on that day and how do I know

because I got some really nasty comments

by some people so a tongue and cheek I

kind of like posted this on my social

media page I just said you know bye-bye

B you know something innocent and some

people got really upset this guy called

CH I don't know if that's how you

pronounce it right he said good for you

you will regrets on laughing on people

shorting the markets did I did I laugh

at people I didn't laugh at people all I

said was bye-bye B right I swear to God

and I believe it you'll pay it off just

keep showing your

fortunes you know so I I I replied

to you know instead of getting angry at

the markets learn how to invest

successfully at panits decom uh and you

can also learn how I invest by watching

my live buy and sell alerts at

inside.of.my at the markets or getting

angry at at other people you know the

whole thing is that learn from your

mistakes and that's how you become a

better investor and Trader and I can

tell you that

what this guy CH is going through is

exactly what I went through in my early

days yes in my early days as a young

investor and Trader I did this stupid

I shorted the market because I

predicted all the market will come down

because of this economic indicator

because this expert say the market will

go down and I shorted the market many

times in the past and I got whacked and

I lost so much money and one of the

things that I learned that the valuable

lesson is never short the market when

the Market is in a boo Market you know

how do you know it's a boo Market very

simple when the the market is above the

200 day moving average and the 200 day

is sloping up that's a freaking bull

market okay when the 50 moving average

is above the 150 moving average and they

both sloping up that's a freaking boom

market so when you short the market or

the markets in a boom Market it's like

pissing Against the Wind you're going to

get a face full of urine I know some

people like golden showers but this is

not the way to do it so what to happen

to the stock market after the FED first

Cuts interest rates again like I said

earlier on it depends on how the economy

holds up if the economy continues to

grow like it is right now then rate cuts

are very bullish for the economy for a

few reasons number one you may notice

that as the FED has been cutting rates

or long-term rates come down the US

dollar has been weakening when the US

dollar weakens that's very good for

companies in the S&P 500 why so there

are two reasons number one when the US

dollar is weaker uh these us companies

their products and services will look

more competitive and cheaper to foreign

markets so they'll buy the foreign

markets will import or buy more us Goods

because they are cheaper in terms of uh

US Dollar conversion number two if you

look at companies like again a

McDonald's or an apple they make money

from all around the world and when they

bring the money back to the US market

when the US dollar is weaker the foreign

currency will create more US dollar so

that increases the revenue and the

profits of these multinational companies

so in other words remember this weaker

US dollar good for us companies okay so

that's the first reason second reason is

that when rates come down then companies

are able to uh Finance their businesses

at a lower rate they can borrow cheaper

and that fuels expansion business

expansion and again that's good for uh

the companies and the markets so again

as long as the economy holds up we can

expect that in the next 12 months the

stock market could uh potentially go up

another 15% in the next 12 months

however if for whatever reason the

economy goes into a recession and of

course stocks will go down and 12 months

from now stocks could be 15% lower so it

all depends

will we be in a recession now

unfortunately unfortunately no one can

predict it not the top Economist in the

world not Warren Buffett not me not no

one can predict when a recession happens

and usually a recession is officially

declared way after it has started so

there's no way to predict it right but

the only thing that you can do I guess

is to watch the price action of the

market as long as the market is making

higher highs and higher lows and the 50

moving average is above the 150 moving

average that means the Boom Market is

very very well intact but once the 50

moving average crosses below the 150

moving average and they start sloping

down then that could be a sign that we

are going into a bare Market which I

doubt will happen but again everything

is possible now if you're not sure

what's the 50 and 150 moving average

I'll talk more about it when I show the

charts in a while yeah now more

specifically if we take a look at the

next 3 months the next 6 months and 9

months and and 12 months what happened

in the past

when the FED cut rates and the US

economy uh stayed strong all right so

three month this these were all the

previous years when the FED cut rates to

normalize and not to because of

recession you can see 3 months after on

average the Market's up

10% uh 6 months later it's up 12% 9

months later it's up 14% And 12 months

later it's up 15% now while we can't

predict a recession with absolute

certainty we can look at certain

coincident indicators to get a feel of

how the economy is doing right now and

the first thing that we can look at is

the current uh Atlanta fed GDP now real

GDP growth estimates that tracks GDP in

real time so as of now the

GDP forecast for quarter tree of this

year is at

2.9% growth which is still very very

strong so remember people were initially

freaking out because what happened was

that in quarter four of last year and

quarter one of this year GDP decelerated

and people think oh my God we're going

to go into a recession then in quarter

two of this year we had a sudden

acceleration of GDP surprising everyone

at 3% growth in quarter 2 and again now

quarter three which is yet to report

officially is as of now at 2.9% so for

now it looks like the economy is still

pretty strong now bear in mind that the

economy is made up of many different

sectors and industries and yes there are

certain industries that are in recession

for example durable goods are in

recession Auto Sales are in recession

the housing market is in a recession so

there are pockets of the industries that

are in recession but we're not in an

overall Market wide or economic wide

recession where everything is

Contracting only those few Industries

and once the FED Cuts rates which is

what they did we should expect Auto

Sales and housing sales to start to

rebound and recover because those are

the most rate sensitive parts of the

market the next coincident and leading

indicator we can look at to determine

whether we are you know going to

recession or not is to look at earnings

per share

uh forecast by companies companies will

always give forecast of where they

expect their earnings to be in the next

12 months or the next you know 20 four

months and of course analyst would study

and compile uh these projections by

companies so for now you can see um this

is from briefing.com for this year which

is

2024 the current S&P 500 earnings per

share estimate is $240 55 so this is

where we are right now that is how much

each share of the S&P is earning now for

next year calendar year 2025 you can see

that earnings per share is expected to

come in at

$276 which is a growth all right and in

2026 earnings per share is looking to

come in at

$311 which again is a growth above

2025 so in other words the next one to

two years we do expect companies to earn

more in terms of their earnings per

share and they earn more they'll be

worth more so stock prices should

continue going up now some people would

argue that the stock market looks really

in a bubble right now it's really

expensive well if you look at the data

not really and there are two things you

can look at number

one if you look

at the past from

1950 uh to 2019 so that's a good uh 70

well 69 years right you can see that

whenever inflation was less than 2.5%

which is where we are now the average PE

ratio of the S&P 500 is 21 times now

guess what's the PE ratio of the S&P now

it's 21 times so in other words based on

history the Market's not expensive but

not the Market's not cheap either it is

fairly

priced another thing you can look at is

the pack ratio of the market that p

ratio or PEG ratio is the PE Ratio

divided by the earnings growth rate okay

and you can see the S&P 500 forward pack

ratio uh for the last 10 years and the

average has been

1.5 and guess where we are now we are

now at

1.49 which is below the 10year pack

ratio mean So based on the pack ratio

the market is not expensive as well all

right so in a nutshell I remain bullish

for the next 6 to 12 months and

specifically which Industries should

outperform the market and I talked about

this in my last video so just to

reinforce what I said number one as

interest rates come down uh small to

medium-sized companies that have more

debt on their balance sheet and less

cash compared to large companies they

should benefit the most and you can see

that ever since the pandemic you see

way before the pandemic happened small

companies small caps used to outperform

large companies because small companies

if you think about it they should grow

faster than big companies since they're

still small right but ever since covid

and ever since the fat rais interest

rates aggressively small companies that

have more debt have suffered and as a

result the

iwm which is the small cap ETF

in uh blue blue sorry not blue in this

is it magenta this color right magenta

you can see that it has

underperformed the S&P 500 ETF which is

made of large companies so as rates come

down I do expect that small companies

small cap ETF the iwm or the vbk either

one I'm personally invested in the vbk I

think that this should play some catchup

to the S&P 500 again there's no

guarantees in life but uh I think

there's a pretty high chance that could

happen the other thing I mentioned in

the last video is I said that consumer

discretionary historically has always

outperformed the market but in the last

two years they have underperformed the

market and if you look at history once

the FED Cuts interest rates consumer

discretionary tends to have the highest

outperformance out of all the sectors

uh uh from the First Rate cut and that's

why I mentioned that there are a lot of

consumer discretionary stocks that are

still very attractive value that could

rebound pretty strongly one once we move

forward companies like your you know

Amazon by the way Amazon is actually

under consumer discretionary companies

like your Lululemon companies like your

Nike you right they could come back

pretty strongly once this happens and

sure enough you can see that in the last

one week the market has reacted to the

fat cut and consumer cyclical which is

discretionary same thing is the third

strongest performer so it looks like it

is rebounding now although I do remain

bullish in the next uh 6 to 12 months

the medium and of course the long term

but in the very short term in the next

two weeks I'm getting a bit cautious in

fact if you're in my private Community

My ultimate invest Playbook you know

that in the last few days I actually

closed many of my short-term option

trades to

profit uh because I think the next two

weeks could be a bit choppy for a few

reasons number one seasonality so if you

look at past September now usually as

you know September is a bearish month

right I've said that many times before

and the last four septembers were all

bearish so will this 5th September be

bearish again who knows it's a 50/50

coin flip but if you look at past

septembers you can see that the worst

part of the month is actually in the

last two weeks the last last two weeks

tends to be the most bearish and this

chart comes from fun strap that's that's

the source right so uh so this combined

with some of the technical patterns

which I'm going to show you in a while

makes me a bit cautious in the next two

weeks so what I've done is again the

last few days when the market was going

up I was closing many of my option

trades to take profit take profit take

profit take money off the table uh so

that the next two weeks if the market

drops again yes I'm going to reenter

many of these trades many of them are

boot put spreads or cash secure puts but

of course for my long-term Investments I

don't sell them right I don't predict

the market I just stay invested and if

the market is willing to offer me a good

price by dropping in a in a very short

term the next two weeks or the next

three weeks I'll be happy to to add more

shares as well because I still do expect

that by the end of

October uh early November we should see

a very strong rally in the markets as we

always do most of the time during an

election year regardless of who wins

although I do think that you know Harris

looks at to win this election before

their debates I gave Trump a 90% chance

of winning but after the debate and

Trump was like you're eating the dogs

you're eating the

CID okay all right after that I said

okay I think Harris uh is going to win

right I give a 70% probability to Harris

winning and then a couple weeks later

when Trump went ballistic I hate Taylor

Swift I said okay the old man's gone all

right so now I'm giving Harris a 90%

chance of winning will I be right I

don't know right but I'm rarely ever

wrong so finally let's take a look at

the charts now for those of you who are

new to technical analysis and you're not

sure about how to use moving averages

here's a very quick lesson so just

remember that this blue line is the 50

moving average this green line is the

150 moving average as long as the blue

line is above the green line we are on a

clear bullish

uptrend or if the price of the market is

above the 200 day moving average which

is the red line and the 200 sloping up

that is also a sign or an indication

where in a boom Market okay a bare

Market or a downtrend is confirmed only

if only if the Blue Line the 50 moving

average crosses below the 150 moving

average and they both start to flatten

or slope down that is a downtrend

bearish signal so we are far from that

the 50 is above the 150 the two round

sloping up the uptrend is very very

strong the boom Market is very much

intact now if you go back in history

let's go back uh 5 years for example by

the way you have to look at Daily

candles uh for this technique right so

if you go

back uh to 20

22 you can see what happened over here

and again can you see that this is a

bull market right this is a bare Market

or

downtrend right and this is a bull

market so at this point of Time how did

you know when the boom Market revers

into a bare Market very simple look at

the blue and green lines which I just

mentioned when the 50 moving average the

blue line right when a blue line when a

blue line crosses below the green line

and they are both flattened or sloping

down so you can see the blue is sloping

down you see the blue sloping down the

Blue Line sloping down the green has

flattened and slop down and once they

cross over that is the uh sign or that

is the signal that this boom Market over

here has reversed into a bare

market and same thing how do you know

when a bare Market reverses back into a

boom Market when the Blue Line crosses

back above the green line and they start

to slope up so over here you can see

which I've taught many times before when

the Blue Line crosses above the green

line and they are both sloping upwards

that is a bull market signal and that is

a sign that we're in a new boom Market

all right so right now as you can see we

are clearly in a bull market um now if

you look at the price action you can see

that we made a high in the market

sometime in July right and we pulled

back and then we went up we never

exceeded that high right we made a lower

high it went down but this time we have

actually made a new high the market has

broken Above This high and we have made

a new intraday high of

5733 now the thing to understand is that

if in the next uh in the next one to two

days if the market closes below this

High which is 5669 right if the market

Market happens to close reverse and

close

bearish and close below this level this

is what we call a bull trap pattern

right it's called bull trap pattern

which Elson talks a lot about in his

price action manipulation cost so in a a

bull trp pattern we could expect the

market to come back down again to the 50

moving average or even the 100 moving

average before the rally at the end of

the year brings it back up again so that

is one scenario so I'm watching the next

one to two days very closely to see that

hey is it going to close back below this

High all right however in the next few

days if we can stay above this level if

the market can't break below this then

this is a very strong breakout pattern

that should take us all the way up okay

but again it doesn't go on a straight

line we could we would still see some

ups and downs along the way but this uh

swing High here would now act as a level

of support for the market so it's really

interesting to see how this whole thing

plays out and as always May the markets

be with you stay safe stay invested in

high quality companies and I'll see you

guys in the next video if you want to

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investing and trading live online this

is Adam coup and may the markets be with

you