Wells Fargo: Rate cut imminent, US stocks set for a "1995-style" surge

Wells Fargo's Chief Strategist Paul Christopher stated that after the Fed's rate cut, the stock market will see an unprecedented rally in the past 30 years.

On Thursday, August 15th local time, Paul Christopher was interviewed by CNBC. The veteran banker pointed out that investors may currently face a market environment similar to that of 1995, when the stock market surged and the S&P 500 index hit 77 historical highs.

Christopher stated, "Currently, inflation in the United States is declining, and the economy is not collapsing. The upcoming rate cut by the Fed will help the U.S. economy achieve a soft landing:"

"If the Fed is proactive enough, there may be a 50 basis point rate cut in September, followed by several more cuts before the end of the year. There is still a great chance for the U.S. to achieve an economic soft landing."

Data released by the Bureau of Labor Statistics shows that the U.S. inflation rate rose by 2.9% year-on-year in July, far below the peak in the summer of 2022. The U.S. Department of Commerce also estimates that the U.S. GDP grew by 2.8% year-on-year in the second quarter.

Big Rebound After Big Volatility

Currently, most investors expect that market volatility will intensify in the coming months due to geopolitical tensions and uncertainty brought by the presidential election. Investors will closely monitor the Fed's rate cut measures and the strength of the U.S. economy. Economists at the Federal Reserve Bank of New York stated that they believe there is a 56% chance of the economy entering a recession by July next year.

However, Wells Fargo insists that the U.S. stock market will experience a big rebound after significant volatility.

Wells Fargo stated that they also expect more market volatility in the coming months, but if the Fed appropriately eases policy, investors may see significant returns after this period.

Wells Fargo also mentioned that lower short-term rates may benefit financial and technology stocks, as financial institutions see an increase in deposits and tech companies see improved earnings. These two trends are reminiscent of what happened in 1995.

"Financial stocks lead the way, followed by tech stocks, and then the entire market enters a period of general cyclical growth. We will definitely be overweight in these sectors I mentioned."