A report released by market research firm Ned Davis Research (NDR) on Thursday showed that as the Federal Reserve prepares to implement its first interest rate cut since 2019, the US stock market is expected to see a significant rise.
Ed Clissold, Chief US Strategist at Ned Davis Research, carefully analyzed historical data and found that in the first year after the Federal Reserve's first interest rate cut, the Dow Jones Industrial Average rose an average of 15%. But if there is no economic recession while lowering interest rates, this increase may even be even greater, reaching 24%.
"When an economic recession does not occur within a year before or after the first interest rate cut, the Dow Jones Industrial Average will rebound even more," said Clissold.
Since the beginning of this week, the Dow Jones has set two consecutive historical records. As of the close of the US stock market on Thursday, the Dow Jones index rose 0.64% to 38049.13 points, setting a new record for the highest closing price recorded on Monday.
The Federal Reserve has hinted that it plans to cut interest rates at least three times this year after inflation significantly slows down from its peak in June 2022. At the same time, strong gross domestic product (GDP) growth and a strong job market signal investors that a recession does not seem imminent, laying the foundation for a strong rise in the stock market in the future.
According to reports, the US economy easily exceeded expectations in the fourth quarter, helping it achieve its strongest growth since 2021, and avoiding the terrifying prospect of an economic recession after the Federal Reserve raised interest rates significantly.
The latest data shows that the initial annualized quarterly growth rate of actual GDP for the quarter recorded a growth rate of 3.3%, and the annual economic growth rate for 2023 was 2.5%.
US Treasury Secretary Yellen also stated on Thursday that inflation is now "well controlled" and there are no signs of a change in the "soft landing" path.
"This is a good thing, reflecting strong and healthy spending and productivity improvements, and is likely not to bring inflation challenges," she said of the GDP report. "I don't see any signs of a threat to a soft landing in this report."
According to calculations, if the average increase after the first interest rate cut during non recession periods reaches 24%, the Dow Jones index will reach around 47000 points. This level is consistent with the recent bullish forecast by JC Parets, an analyst at All Star Charts. He said that if the US dollar falls, the Dow Jones index could soar to 50000 points.
"The most important thing is that the stock market often rebounds within a year after the first interest rate cut," said NDR analyst Clissold.