Wells Fargo is "going crazy" bullish: The market will see its biggest rise in 30 years after the Fed's rate cut

Paul Christopher, global investment strategist at Wells Fargo, said the stock market is about to experience its biggest rally in 30 years. He noted that the market is similar to 1995, when the stock market was booming and the S&P 500 hit 77 all-time highs.

Christopher said investors may be facing a similar environment as inflation is falling, the economy “not crashing,” and the Fed is estimating 2.8% YoY GDP growth in Q2.

Christopher said the Fed “is in a good position if they can be aggressive enough” on Thursday. He implied that central bankers will cut rates by 50 basis points in September and then “cut a few more times before year-end,” adding that “we still have a good chance of a soft landing.”

Since the Fed began raising rates in March 2022 to combat inflation, the market has been focused on the Fed cutting rates. But inflation is far below its peak in the summer of 2022. The Bureau of Labor Statistics said inflation rose 2.9% YoY in July.

Christopher noted geopolitical tensions and uncertainty from the election and expected more volatility in the market over the next few months. He said investors would likely see some significant gains if the Fed eased policy appropriately after that time.

He said lower short-term rates would most likely benefit financials and techs, as banks would have more deposits and tech companies would have improved earnings, both of which “were the same as in 1995.” Christopher said, “Financials have been leading the way, until techs took over, then the market had a broad cyclical downturn, and we will definitely be overweight the large-cap stocks I mentioned.”

Most stock strategists expect more volatility in the market over the next few months as investors focus on the Fed cutting rates and monitor the strength of the US economy. The New York Fed economists said they believe there is a 56% chance of a recession before July 2024.