Hello, Subscribers:
A year ago, the Fed cut interest rates for the first time in over four years, concluding its aggressive tightening campaign that began, extremely belatedly, in March of 2022. Since then, the stock market is up roughly 18%, despite that valuations were very punchy last September. As you can see below, this is a familiar outcome.
On that point, ZeroHedge ran this chart in a timely article titled: When The Fed Cuts With Stocks At All-Time Highs, The S&P Is ALWAYS Higher One Year Later.
"Always" is a strong word but, as you can see, their chart runs back to 1971, ironically, the year Nixon severed America's last link to the gold standard. (Degrading the dollar to a fiat currency was supposed to be a temporary measure but, like so many government programs and manipulations, it can only be viewed as temporary based on cosmic time.)
The average return under these circumstances is almost 15%, citing JPMorgan trader Craig Cohen. That's about 50% more than stocks typically produce on an annual basis (15% vs 10%).
Now, with the Fed cutting again, after two more rate cuts last year, and stocks again at all-time highs, bulls can take solace in the likelihood of even more elevated prices a year out. However, as we saw earlier this year, that doesn't preclude a serious correction between now and then.
It does support the view, though, that any serious sell-off is to be used for equity accumulation. Should there be another global margin call event, causing forced deleveraging — as there was in 2020, 2024, and this past April — that should create an even more lucrative buying opportunity. Based on the high degree of leverage in the U.S. financial system, the possibility (probability?) of another episode of involuntary liquidation, i.e., mass margin calls, should not be dismissed.
David “The Haymaker” Hay
IMPORTANT DISCLOSURES
This material has been distributed solely for informational and educational purposes only and is not a solicitation or an offer to buy any security or to participate in any trading strategy. All material presented is compiled from sources believed to be reliable, but accuracy, adequacy, or completeness cannot be guaranteed, and David Hay makes no representation as to its accuracy, adequacy, or completeness.
The information herein is based on David Hay’s beliefs, as well as certain assumptions regarding future events based on information available to David Hay on a formal and informal basis as of the date of this publication. The material may include projections or other forward-looking statements regarding future events, targets or expectations. Past performance is no guarantee of future results. There is no guarantee that any opinions, forecasts, projections, risk assumptions, or commentary discussed herein will be realized or that an investment strategy will be successful. Actual experience may not reflect all of these opinions, forecasts, projections, risk assumptions, or commentary.
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David Hay is a passive owner of Evergreen Gavekal (“Evergreen”), a registered investment adviser with the Securities and Exchange Commission. As of 03/31/2025 Mr. Hay has no involvement in the day to day operations of Evergreen, nor is he involved with any investment research, or investment management performed by Evergreen. The information herein reflects the personal views of David Hay as a seasoned investor in the financial markets and any recommendations noted may be materially different than the investment strategies that Evergreen manages on behalf of, or recommends to, its clients.
“[C]osmic time.” Good one.