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Markets Insider
Stocks will rally 5% in just 5 days after the Fed's rate decision this week, Fundstrat says
By Matthew Fox,
9 days ago
Photo by Cindy Ord/Getty Images for Yahoo
The stock market could see a 5% gain over the next week, according to Fundstrat's Tom Lee.
The rally would be sparked by a dovish Fed FOMC meeting on Wednesday that all but confirms imminent interest rate cuts.
"These are significant gains, implying the S&P 500 could gain 200-300 points in the next week," Lee said.
The stock market is poised to surge as much as 5% in the next week, according to a Wednesday note from Fundstrat.
The research firm said it expects an explosive rally in the S&P 500 to materialize in the five days following the Federal Reserve's FOMC meeting on Wednesday.
"The key premise is the Fed is likely to commit to a September rate cut of at least 25bp. A possibility of more than that is not necessary. And while bond markets have priced in 100% probability of this, equity investors likely will not be convinced until the Fed affirms this as such," Fundstrat's Tom Lee said.
"Overall, we believe risk-on moment is coming," Lee said.
Lee's confidence in a strong rally post-Fed meeting is based on the fact that recent Fed meetings have sparked a big rally in stocks.
In the past two years, when stocks were down heading into a Fed FOMC meeting, stocks saw a five-day gain of as much as 5.5% and a median gain of 3.4%.
"These are significant gains, implying the S&P 500 could gain 200-300 points in the next week. This is very compelling in our view," Lee said.
And while a 25 basis point interest rate cut may not seem like much, it has real-world economic impacts that could ultimately influence the US housing market in a big way.
"Here are some tangible reasons a Fed cut makes sense: 30-year mortgage has excess spread to 10-year due to uncertainty. The spread could shrink from 270 basis points to 170 basis points (50-year average)," Lee explained.
Interest rate cuts from the Fed, however small, would also help alleviate an ongoing slowdown in the housing, durables, and auto markets, Lee said.
A 5% rally in the S&P 500 would catapult the index to fresh record highs, completely erasing its 5% decline over the past few weeks.
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