With the Federal Reserve cutting interest rates “in jeopardy” during the year, the US economy is expected to achieve a “soft landing”, and the technology sector will usher in an AI boom... All signs have convinced Wall Street that the 1995 market boom is about to return.

Recently, Jurrien Timmer, director of global macro strategy at Fidelity, told Investors Business Daily (IBD) that now “the market seems to be repeating that history.”

Wedbush tech analyst Dan Ives has repeatedly compared the artificial intelligence carnival staged by tech stocks to the internet boom in 1995.

Deutsche Bank analyst George Saravelos also said that the current economic situation is similar to 1995, and artificial intelligence technology is driving a new productivity cycle.

The Federal Reserve is likely to repeat the situation in 1995. In that year, the Federal Reserve cut interest rates by 75 basis points, lower than expected to cut interest rates by more than 100 basis points.

The Fed's interest rate cut is “a foregone conclusion”, and the economy is expected to have a “soft landing”

More than six months have passed since the Federal Reserve carried out the “last plus” of the current austerity cycle on July 26, 2023.

Inflation declined steadily during this period. The Federal Reserve's favorite core PCE price growth rate hit a new low of nearly 3 years in December. Wall Street expects CPI to rise 3.7% year on year in January, the smallest year-on-year increase since April 2021.

Meanwhile, the number of non-farm payrolls in the US surged in January. GDP for the fourth quarter of last year far exceeded expectations. Goldman Sachs raised the 2024 GDP growth forecast by 0.3 percentage points to 2.4%.

A series of data shows that the US economy is still resilient, and the prospects for a “soft landing” are becoming more and more clear.

Due to unexpectedly strong economic data, the market expects that the possibility that the Federal Reserve will cut interest rates for the first time in May is as high as 94%, and that the possibility of cutting interest rates in March falls back to 38%.

The Federal Reserve expects that interest rate cuts may reach 75 basis points during the year, while traders are betting on a larger rate cut, reaching 125 basis points.

Taking history as a guide, the Federal Reserve's interest rate cut and the US economy's “soft landing” is an excellent time for US stocks to soar.

Timmer told IBD:

If the Federal Reserve adjusts its policy direction because an economic recession is brewing, then corporate profits will often decline, and the stock market may fall.

But recessions don't always follow; the 1994-1995 economic cycle is a good example, when the “cup” of economic development was half full, or even about to overflow.

During the interest rate hike cycle in the 90s of the last century, the federal benchmark interest rate doubled to 6% within 12 months. As the inflation rate continued to fall, the Federal Reserve completed the last rate hike on February 1, 1995, and began cutting interest rates in July.

This shift has given wings to the take-off of US stocks. The cumulative increase of 34% in 1995 is still the biggest yearly increase since the 1950s.

In the six months since the Federal Reserve last raised interest rates in February 1995, and in the six months following the short interest rate hike cycle that ended in March 1997, the S&P 500 rose 19% each time, while the Nasdaq Composite Index rose more than 30% each time.

At the time, the performance of US stocks was far better than normal. Over the past nine interest rate hike cycles, the S&P 500 index and the Nasdaq Composite Index rose by an average of 11% and 12% in the six months after the Federal Reserve's final rate hike.

Analysts also expect stock returns may be higher than average after the Federal Reserve cuts interest rates this year. Over the past 11 cycles since 1982, the average return of the S&P 500 Index and the Nasdaq Composite Index was close to 10% in the 6 months after the first rate cut.

The “Internet Era” of artificial intelligence is about to begin

Following a 54% surge last year, the Nasdaq 100 is up 8.6% this year. Nvidia has risen nearly 50% this year so far, maintaining strong gains since 2023, while Meta, another big winner last year, rose 35%.

This strong start shows that the “internet boom” of 30 years ago is being revived. Wedbush tech analyst Dan Ives has repeatedly compared the artificial intelligence carnival staged by tech stocks to the internet boom in 1995.

In a recent X platform post, he said:

In my opinion, the “Internet Era” of artificial intelligence is about to begin. Artificial intelligence will forever change technology and change the development trajectory of the technology industry.

Editor/Corrine