Fed 25bp cut is start of an easing cycle = positive. OW MAG7, Crypto and small-caps/financials

Video: The Fed made a dovish cut of 25bp on Wed and this is supportive of stocks over the next 12 months, as a cutting cycle is starting.  We do not see a bubble yet, as NVDA -1.59%  continues to only trade at 26X forward P/E.

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The Fed made a dovish cut Wed of 25bp, dovish because to us, this is the start of an easing cycle rather than “one and done.” There are many who are wondering how this could be positive for stocks, but we see multiple reasons this is positive for equities.

• Foremost, as we described earlier this week, we see several benefits from easing:
  – Fed is boosting monetary liquidity, which is good for asset prices
  – Fed cut likely boosts CEO and biz confidence, allowing ISM to move >50
  – Higher biz activity means improved hiring, which Fed would like to see
  – Fed cut should reduce spread of mortgage rates to bonds = boosts housing
  – Fed is making cash less attractive, which is risk-on
• Equities saw positive follow through on Thursday, led by Nasdaq +0.94% QQQ -1.23%  and Russell 2000 small-caps +2.5% IWM -0.63% . This is consistent with what happened in Sept 2024 and to an extent Sept 1998, the only 2 other times the Fed was on extended pause and then made a cut in September.
• The standout in gains were Ethereum and Bitcoin, which outperformed by >200bp since Fed cut and the equities leveraged to ETH -2.71% and BTC -2.94% , BitMine BMNR -8.64%  was up 5% and Microstrategy MSTR -5.07%  was up 6%. Crypto is leveraged to monetary easing because of the liquidity impact. And we have written about how crypto tends to be a leading indicator to equities. And this upside move is a positive signal for stocks broadly.
• Carson Group, Ryan Detrick posted an interesting statistic. The last 20 times equities were within 2% of an all-time high and the Fed cut, stocks were higher every single time. The median gain was 13%. This is showing us that stocks are not near a peak, yet.
• In fact, the best barometer of this, in my view, Nvidia NVDA -1.59% , which to me, is the scarcest company today. They make a chip that every single AI company needs. And yet, the P/E is only 26.6X while COST 0.53%  WMT 6.17%  trade at 49X and 34X. So, until NVDA P/E is 50X or so, it is hard to argue NVDA is a bubble.
• Looking back at Cisco in the late 90s CSCO -2.03% , we can see what bubble valuations look like.
  – In Sept 1998, CSCO $16 price and 56X P/E
  – by late 1999, CSCO $80 price and 210X P/E
  – P/E expanded by 4X in 12 months
• That is what a bubble looks like.
• Lastly, sentiment remains stubbornly and surprisingly bearish. The AAII last survey of bulls less bears is -0.7. This is the 7th consecutive week of negative sentiment. And while markets are at all-time highs.
• All eyes were on the FOMC Decision & Meeting this week, with a -25bp:
  – 9/15 Mon 8:30 AM ET: Sep Empire Manufacturing Survey -8.7 vs 5.0e
  – 9/16 Tue 8:30 AM ET: Aug Retail Sales 0.6% vs 0.3%e
  – 9/16 Tue 10:00 AM ET: Sep NAHB Housing Market Index 32 vs 33e
  – 9/17 Wed 9:00 AM ET: Sep M Manheim Used Vehicle Index 207.5
  – 9/17 Wed 2:00 PM ET: Sep FOMC Decision -25bp vs -25bpe
  – 9/18 Thu 8:30 AM ET: Sep Philly Fed Business Outlook 23.2 vs 1.7e
  – 9/18 Thu 4:00 PM ET: Jul Net TIC Flows $2.1b

BOTTOM LINE: Still “most hated rally”

This still remains the “most hated” V-shaped stock rally. As for what we would buy

• MAG7 & Bitcoin & Ethereum
• Industrials
• Financials: Large-cap and regional banks
• Small-caps

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50 SMID Granny Shot Ideas: We performed our quarterly rebalance on 8/17. Full stock list here -> Click here

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Key Incoming Data September:

• 9/2 9:45 AM ET: Aug F S&P Global Manufacturing PMI Tame
• 9/2 10:00 AM ET: Aug ISM Manufacturing PMI Tame
• 9/3 10:00 AM ET: Jul F Durable Goods Orders Tame
• 9/3 10:00 AM ET: Jul JOLTS Job Openings Tame
• 9/3 2:00 PM ET: Sep Fed Releases Beige Book Tame
• 9/4 8:30 AM ET: Jul Trade Balance Tame
• 9/4 8:30 AM ET: 2Q F Unit Labor Costs Tame
• 9/4 8:30 AM ET: 2Q F Non-Farm Productivity Tame
• 9/4 9:45 AM ET: Aug F S&P Global Services PMI Tame
• 9/4 10:00 AM ET: Aug ISM Services PMI Tame
• 9/5 8:30 AM ET: Aug Non-Farm Payrolls Tame
• 9/8 9:00 AM ET: Aug F Manheim Used Vehicle Index Tame
• 9/8 11:00 AM ET: Aug NY Fed 1yr Inf Exp Tame
• 9/9 6:00 AM ET: Aug Small Business Optimism Survey Tame
• 9/10 8:30 AM ET: Aug Core PPI Tame
• 9/11 8:30 AM ET: Aug Core CPI Mixed
• 9/12 10:00 AM ET: Sep P U. Mich. Sentiment and Inflation Expectation Tame
• 9/15 8:30 AM ET: Sep Empire Manufacturing Survey Tame
• 9/16 8:30 AM ET: Aug Retail Sales Data Tame
• 9/16 10:00 AM ET: Sep NAHB Housing Market Index Tame
• 9/17 9:00 AM ET: Sep M Manheim Used Vehicle Index Tame
• 9/17 2:00 PM ET: Sep FOMC Decision Dovish
• 9/18 8:30 AM ET: Sep Philly Fed Business Outlook Tame
• 9/18 4:00 PM ET: Jul Net TIC Flows Tame
• 9/22 8:30 AM ET: Aug Chicago Fed Nat Activity Index
• 9/23 9:45 AM ET: Sep P S&P Global Services PMI
• 9/23 9:45 AM ET: Sep P S&P Global Manufacturing PMI
• 9/23 10:00 AM ET: Sep Richmond Fed Manufacturing Survey
• 9/23 10:00 AM ET: Aug Existing Home Sales
• 9/24 10:00 AM ET: Aug New Home Sales
• 9/25 8:30 AM ET: Aug P Durable Goods Orders
• 9/25 8:30 AM ET: 2Q T GDP
• 9/25 11:00 AM ET: Sep Kansas City Fed Manufacturing Survey
• 9/26 8:30 AM ET: Aug Core PCE Deflator
• 9/26 10:00 AM ET: Sep F U. Mich. Sentiment and Inflation Expectation
• 9/29 10:30 AM ET: Sep Dallas Fed Manuf. Activity Survey
• 9/30 10:00 AM ET: Sep Conference Board Consumer Confidence
• 9/30 10:00 AM ET: Aug JOLTS Job Openings

Economic Data Performance Tracker 2025:

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: