A lot of investors have stayed on the sidelines this year. I get it. Sometimes it feels like life is shock after shock and the stock market is the biggest rollercoaster ride of all . . . without seat belts or brakes. If you want to focus on the risk factors (the election, the economy, the Fed) you’ll find plenty to worry about. That’s an emotional decision. I can’t change your heart.
But Wall Street is motivated by numbers and not feelings. From that perspective, I have to say the next two weeks look like the most critical window of the entire economic cycle. I want you to win. I’m doing everything I can to motivate you to come in from the bench.
Because you need to make your choice to get back in the game before September 18, which is when Jay Powell gets his first chance to start cutting interest rates. After that first cut, the numbers get worse for every dollar parked in CDs and Treasury bills and money markets.
Remember, those investments are safe, but as they mature in a lower-rate world, their returns will drop.
You Need To Get Off The Sidelines ASAP
In other words, this is as good as it gets on the sidelines. You might feel pretty smug about making 5% in those instruments right now. Next summer, if the rate futures market has it right, you’ll be lucky to lock in 3% . . . which isn’t much even if you think the Fed is going to wrestle inflation back down to 2%.
How smug would you feel about locking in a real return of barely 1% for a year or two? Meanwhile, my experience tells me the odds of even a plain vanilla stock portfolio beating that score are pretty high.
After all, American households have crammed a lot of cash into the safety trade right now: $11 TRILLION in those CDs and Treasury bills and money markets. About half of that money came in when Jay Powell started raising interest rates. We’re starting to see that money flow back out in anticipation of the first rate cut ahead.
Where’s it going to go? A lot of it will need to come back to the stock market. These investors will need to get back off the sidelines and buy back into the greatest companies on the planet.
And you know the law of Wall Street: as demand for a fixed supply of shares rises, the price goes up. My numbers say that shifting just half of that massive pool of cash can lift the S&P 500 as a whole by about 10-11% without any other factor in play.
That’s a lot better than what CDs are paying now, much less where they’re probably going in the coming year. My experience tells me that every time the Fed cuts rates, stock charts open up about 3 percentage points of added upside.
In that scenario, that first cut is worth a full year of real yield for a lot of people. That’s the tipping point. From there, additional cuts stack up and stocks prove that the rollercoaster can be a satisfying ride after all IF you have the nerve to follow the numbers instead of your fears.
Wall Street follows the numbers, like I said. Investors with deep pockets and expert advice aren’t going to sit on the sidelines settling for diminishing returns. They’re going to move fast and furious.
I Want To See You WIN!
That’s why I’m reaching out before the Fed pivots. We don’t have a lot of time to beat those big investors to the party. This might be our last chance in this cycle to grab the good spots ahead of the crowd.