The Federal Reserve launched this round of easing cycle with a high-profile 50 basis point rate cut this week.

It is worth noting that the Federal Reserve also hinted at further interest rate cuts, reigniting hopes that the United States will be able to avoid a recession. This has also boosted investor risk appetite, leading to a collective celebration in the overnight U.S. stock market, with the Dow and S&P hitting new historical highs and the Magnificent 7 technology giants soaring across the board.

This article previouslyStatistics show that during non-recession periods, after entering an interest rate cutting cycle,$S&P 500 Index (.SPX.US)$it often performs well. Solita Marcelli, from UBS Global Wealth Management, said,

historically, when the Federal Reserve cuts interest rates and the U.S. economy does not enter a recession, the stock market typically performs well. We expect this time to be no exception. Our base expectation is for the S&P 500 to reach 5900 points by the end of the year and rise to 6200 points by June 2025.

Fawad Razaqzada from City Index and Forex.com said:

Despite the volatility following the Fed's rate cut, the bullish trend of the S&P 500 index remains intact. The Fed's decision to cut rates by 50 basis points has been largely welcomed by investors. This move is seen as a bold but necessary measure aimed at easing economic recession, without triggering panic signals similar to the 2008 financial crisis.

Will the Fed's rate cut inject a 'heart stimulant' into technology stocks?

Wedbush analyst Dan Ives has expressed that the Fed's rate cut is the "missing piece of the puzzle," indicating the 'green light' for high-growth technology trades has been relit and will continue through the end of the year and into 2025.

In fact, the rate cut cycle has implications for the American technology giants- $Apple (AAPL.US)$Please use your Futubull account to access the feature.$Microsoft (MSFT.US)$Please use your Futubull account to access the feature.$NVIDIA (NVDA.US)$and$Amazon (AMZN.US)$and$Alphabet-A (GOOGL.US)$/ $Alphabet-C (GOOG.US)$and$Meta Platforms (META.US)$and$Tesla (TSLA.US)$ The impact is usually positive.

In the early stage of the previous interest rate cut cycle, although the initial market reaction caused some technology giants' stock prices to decline slightly, this trend did not continue. Over time, the stock prices of these companies have shown significant growth in the 3-month, 6-month, and 12-month periods after the interest rate cut.

It is especially worth mentioning Tesla, whose stock price has achieved nearly fivefold astonishing growth within one year after the interest rate cut, which is particularly eye-catching. This phenomenon indicates that although there may be uncertainty in the market in the early stages of the interest rate cut, technology giants tend to benefit from a low interest rate environment in the long run.

Brian Belski, Chief Investment Strategist at BMO Capital Markets, said that the interest rate cut may be beneficial for growth stocks. The bank believes that in this context, the upward trend of the stock market will expand, and growth stocks still have the potential for further gains, especially in the technology sector. Although the Federal Reserve's interest rate cuts have traditionally been favorable for all stocks during non-economic recessions, they also make growth stocks more attractive because the decline in interest rates will increase the present value of these companies' future cash flows.

BMO Capital Markets believes that in this context, the upward trend of the stock market will expand, and growth stocks still have the potential for further gains, especially in the technology sector. Although the Federal Reserve's interest rate cuts have traditionally been favorable for all stocks during non-economic recessions, they also make growth stocks more attractive because the decline in interest rates will increase the present value of these companies' future cash flows.

He also stated that the growth story of AI has not shown any signs of ending, and he is bullish on the profitability of the global technology industry growing by around 15% to 20%. He also believes that the US economy will achieve a soft landing, with earnings per share of S&P 500 index constituents growing by 11% this year and 8% by 2025.

In fact, historically, interest rate fluctuations have had a significant impact on growth-oriented technology stocks because the value of these companies is primarily based on future earnings expectations. When interest rates rise, the present value of future profits decreases, which may have a negative impact on the valuation of technology stocks. Conversely, when interest rates decline, the present value of future profits increases, potentially enhancing the attractiveness of technology stocks.

Therefore, although interest rate cuts may cause market volatility in the initial stages, in the long run, they provide growth impetus for tech giants. Particularly in the context of economic growth and increased market confidence, as it raises investors' expectations of future cash flows from these companies.

However, compared to the Fed's interest rate cuts, the upcoming earnings season is more important for the US stock market.

Next month, the U.S. stock market will welcome the earnings season. Although third-quarter corporate performance may look good, company executives may warn of a dim demand outlook. And the adjustment in the U.S. stock market could start from here. October may cause panic in the market.

Alphabet, the parent company of Google, and Meta will announce their financial reports at the end of October, which will provide more clues. Their comments on advertising spending will reveal whether marketers are prepared for stronger or weaker consumer demand. Apple will announce its third-quarter earnings in early November, which will have an impact on a wider range of consumer electronics products, chip manufacturers, and related business chains.

Editor/Somer