I think that rate cut by June, S&P 500 has room to run, but I don't expect a straight line up.
Here's the honest take. Fed fund futures now price nearly a 90% probability of a 25bps cut by mid-year, driven by January CPI dropping to 2.4% — the lowest in nearly five years. That's a meaningful shift in market expectations, and equity markets love that kind of certainty.
But history tells us the setup is more nuanced than just "rate cut = stocks go up."
Yes, lower rates reduce borrowing costs, expand multiples, and lift risk appetite. Goldman Sachs sees US growth accelerating to 2–2.5% in 2026, and corporate earnings remain resilient — a goldilocks mix of benign inflation, lower rates, and growing profits. CNN That combination historically supports S&P 500 upside.
The catch? Three things could spoil the party.
First, the Fed chair transition. Powell's term expires in May, and whoever Trump nominates brings policy uncertainty that markets haven't fully priced in yet.
Second, the AI fear trade is still running — sector rotations are violent and unpredictable, which creates pockets of sharp drawdowns even in a bull market.
Third, and most critically: if rate cuts come because the economy is weakening, not because inflation is beaten, the S&P 500 could still trend lower despite supportive monetary policy — as we saw during the dot-com crash, the GFC, and COVID.
Bottom line — a June cut, anchored by genuine disinflation and not recession fear, is bullish. S&P 500 year-end targets range from 7,100 (BofA) to 8,000 (Deutsche Bank) with the bias tilted upward. But brace for volatility along the way. The gains will come — just not without a few gut-checks first.
Key Takeaways :
1. Rate cut on current trajectory = net positive for equities, especially rate-sensitive sectors
2. Watch PCE data this month — it confirms or kills the June cut narrative
3. Accumulate on dips; don't chase rallies blindly in an AI-disrupted, politically volatile market
4. Sectors to overweight: financials, small-caps, REITs — all historical beneficiaries of early easing cycles
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