Rate cut or continuation of the US bull market? BMO: US stocks may continue to rise but the increase is expected to be lower than historical average.

In a client report on September 11, Brian Belski, Chief Investment Strategist at BMO Capital Markets, pointed out that the Federal Reserve's shift to rate cuts or the continuation of the U.S. bull market may result in stock returns weaker than historical average levels. Belski analyzed the performance of the S&P 500 index in the ten periods following the first rate cut or resumption of rate cuts since 1982, finding that 8 periods resulted in positive returns, with an average increase of around 10.4% in the following year. Results varied significantly due to differences in economic backgrounds, ranging from a drop of nearly 24% to an increase of over 32%. Belski emphasized that the strength of the stock market's upward trend depends on whether rate cuts can prolong economic expansion and sustain corporate profit growth. If monetary easing fails to prevent economic recession, as in 2001 and 2007, the stock market will suffer losses. Current economic conditions show favorable factors: despite a cooling labor market, Atlanta Fed estimates suggest that job growth remains solid, unemployment claims are stable by historical standards, GDP growth is slightly above trend, and it is expected that corporate profits will maintain double-digit growth until 2026. Belski believes that the debate among investors over the Fed's rate cuts "misses the point" - as long as the economy avoids major fluctuations, the U.S. stock market can maintain its bull market, although the significant increase in the past year suggests that future gains may be more moderate than historical norms. On an industry level, BMO's analysis shows that in the ten rate-cut cycles since 1982, most sectors have experienced growth in the year following the first rate cut. Communication services, non-essential consumer goods, industrial, and information technology sectors typically perform well, while the energy sector has consistently lagged behind. It is worth noting that the energy, healthcare, materials, and utility sectors, which showed weak performance before the rate cut, may experience a rebound stronger than the average in the coming year. BMO maintains a target price of 6700 points for the S&P 500 index at the end of 2025, corresponding to earnings per share of $275 and a price-to-earnings ratio of 24.4. The institution continues to recommend overweight positions in technology, financials, and non-essential consumer goods stocks, while suggesting underweight positions in healthcare and essential consumer goods stocks. Specific strategies cover U.S. tactical stocks, dividend growth, and SMID investment portfolios.