all right so it's finally happening

after months of speculation uh fat share

Jerome Powell yesterday made it very

very clear abundantly clear that he's

going to start cutting interest rates

this coming September so what does it

mean to the for the stock market do we

expect the stock market to continue

going up or will the market usually

crash after the fat Cuts rates and if

the market continues to go up which

sectors what kind of stocks are going to

benefit the most well let's find out in

this video

[Music]

so after increasing interest rates

aggressively in 2022 and keeping

interest rates pretty high for the last

2 and a half years the fat chair Jerome

Powell is going to cut interest rates

for the first time this coming September

and in many many ways it has been a

blessing for those of us who have had

cash in fixed deposits in Money Market

funds in bonds we've had pretty good

yields right but it's all coming to an

end so your nice 5% interest rate on

your fixed deposits on your time

deposits are all going to start coming

down so how much lower will interest

rates go from here well if you take a

look at what is called the FED Dot Plot

now there are about 19 members in the

Federal Reserve committee and they will

all vote on where they think interest

rates will be or they're going to cut

two in the next uh 3 to 4 years so and

that's why you can see that for each

year 2024 that's this year 25 26 and in

the long run you've got all these dots

so each dot represents a vote by one

member so they all have uh different

expectations so we take a median of

where it's going to be now of course

does it always play out exactly no it's

just an expectation now currently the

FED funds rate which is the short-term

interest rate is at

5.25% to 5.5% that is the current rate

range all right so what the FED members

expect is by the end of this year

they're going to cut interest rates by

25 basis points which is

0.25% so the Medan expectation is by the

end of this year the FED funds rates or

short-term interest rates will go to

about just over 5% which is actually

still pretty high right but next year by

the end of next year 2025 they expected

to go down to a median of 4.1% in 2026

3.1% and in the long run rates are going

to come back down to 2.8% which is still

much higher than where we started in

2022 at the time interest rates were

near zero because of covid the FED cut

rates to zero to stimulate the economy

okay so let's answer the first

question as the FED starts lowering

short-term interest rates then longterm

interest rates rates start coming down

as well okay how will this affect the

stock market Will the Market continue to

be bullish or will it be bearish so to

answer this question here's a bit of uh

basic economics to understand why the

FED raises and cuts interest rates in

the first place now think of the economy

like a car we want the car to keep

moving but if the car goes too fast what

happens it gets overheated smoke coming

out right so that's what happens when

the economy is too strong you get

inflation we don't want that okay so too

fast no good now at the same time if the

car goes too slowly and the car stops

and stalls we don't like that either

that's called recession all right so

what happened was in 2021 the economy

the car was going too fast overheating

we had inflation so the the the FED had

to slow the car down by stepping on the

bre break so when they step on the break

it's raising interest rates so remember

raising interest rates means they're

tapping on the braks to slow the car

down so the last 2 and a half years were

tapping tapping tapping tapping and a

car is slowing down right but the the

concern what happens if you tap on the

brakes too much the car May stall and

stop so now the FED is realizing okay

there's no more smoke coming up

inflation is now t came and the car is

slowing down so before the car stops the

FED has to start stepping on the

accelerator which is cutting interest

rates so remember whenever the fat Cuts

interest rates is like them stepping on

the accelerator to get the car going and

ensuring it doesn't stall now if you

read a lot of Doom and Gloom articles

many people say oh if you look at the

past every time the the fat cut interest

rates what happened the market will

crash we had a recession right so is

that always true as usual we like to

look at the facts the numbers and not

just generalize based on one or two

events so on this chart you can see all

the times when the FED first started

cutting interest rates when they first

started stepping on the accelerator

going back to 1970 the last 54 years all

right so again some people who want to

create a lot of fear they'll say Hey you

know uh by the way this is the First

Rate cut in every cycle which is this

cut I don't know what color you call

that it's kind of like a strange blue

let's call it blue right so you can see

they may say hey see over here they they

cut interest rates what happened boom we

had a recession we had the great

financial crisis same thing here they

cut interest rates what happened we died

again and over here they cut interest

rates we died again so this time when

they cut interest rates we're going to

die okay now remember you have to

understand the logic of

why uh they were cutting rates here here

so understand that when the fat cut

interest rates

here it's like again stepping on the

accelerator it's not the cutting of the

interest rates that caus the crash the

point was the market was already

crashing for other reasons in this case

it crashed because of the dotom bubble

bursting all right in this case it was a

great financial crisis because of

property collapsing so it was another

reason that caused the crash so once the

the fat saw that the car was being hit

by a boulder or the car was being hit by

another car what did they do they didn't

want the car to stop so they started

stepping on the accelerator to get the

car going but when you step on the

accelerator the car doesn't go

immediately it takes a few months for

the car to get started so there's a kind

of a couple of months lag right so

that's the reason why it coincided with

the First Rate cut over here yeah so

going back 54 years yes there were times

when the fed had to cut rates to save

the economy to save the market that got

whack for some other reason and this

happened again in 1981 which is over

here uh they cut rates market crash 2001

they cut rates market crash 2008 the cut

rates market crash happened three times

in 54 years but at the same time in that

same 54 years there were many times when

the First Rate cut was followed by a

stock market rally and this happened in

1980 84 90 uh 89 95 and 2019 so let's

take a look at this so first in 1980

over here what happened the FED cut

interest rates Ste on the accelerator

Market went up they cut interest rates

for the first time of 1984 Market went

up they cut rates for the first time in

1989 Market went up a bit of a dip then

went up again cut rates here Market went

up and of course finally in 2019 when

they cut rates again Market went up let

me say but the market crash now again

this market crash was not because of the

rate cut this Market crashed because of

the covid-19 pandemic so once again this

market crash was not caused by a rate

cut it was caused by something else

completely all right so what's the

lesson history shows that rate hikes

rate increases and rate Cuts alone don't

determine the direction of the stock

market the direction of the stock market

depends on the earnings growth of the

companies which is indirectly affected

by economic growth and consumer spending

which is affected by many other

variables that you can't predict all of

them all right now in this next chart

you can also see historically um what

happened when the FED first started

cutting interest rate since 1955 and it

all depends again on what is happening

to the economy is the economy doing well

or is the economy going into recession

so when there is no recession and the

economy continues to do well you can see

this red line once the fat Cuts rates

let's call that um at 0 Z and there's no

recession the market continues to be

bullish so much so that in 12 months the

market is up

about um I would give it about 15%

higher and in 24 months it's up to

another 40% higher if there's no

recession now what if there is a

recession and we found that the FED cut

rates too slowly that they should have

stepped on an accelerated a lot earlier

now they're too late and economy is like

slowing down the car slowing car's going

to stall then what do we expect then

yeah the market could go down in that

situation of which historically you can

see that 6 months uh with a recession in

Orange you can see if there's a

recession that hits you can see 6 months

after the First Rate cut or over here

let's say about 9 months the market may

drop about uh 50 % from where we are now

but in 12 months it would rebound and

we're just down about 5% and within

about 24 months you've made back all the

losses so I keep saying that as an

investor don't be worried about

recessions and Market crashes they are

always

temporary that over time in the next 12

24 months markets will always make it

all back and be a lot higher and

especially if you hold hold on to good

high quality companies they may not even

drop very much anyway right and even if

they do drop temporarily good gives us a

chance to accumulate more shares at

discount so in the long run we have a

bigger stti in these great companies and

we make much higher returns as our

wealth compounds of course you may ask

me the million dollar question so Adam

are we going to a recession or not

because there's a big difference and the

answer is I don't know okay no one can

predict for certain even the top

Economist can't predict when a recession

will occur and if a recession will occur

all we can do is to look at the current

state of the eony now and to see okay

what's the probability that the economy

is slowing down into recession and

what's the probability that it's Contin

to grow okay so there are two things we

can look at number one we look at

GDP and if you look at GDP for the last

quarter which was quarter 2 2024 GDP

accelerated better than expected to 2.8%

in quarter 2 how about quarter three

which has not yet been reported well if

you look at the Atlanta fed GDP now real

tracking data that tracks GP as real

live as possible you can see the latest

forecast for quarter Tre GDP is 2%

granted it has been slowing down from

2.8% well it did go up to

2.9% and to Dro to 2.4% and now 2% but

it's it's still growing for now all

right I'm not saying that it can go

negative you could but for now it's

still

growing but what's more important is not

just the GDP it's the earnings of the

company remember

ultimately what drives the stock market

higher what drives stock prices higher

earnings as long as earnings grow prices

will increase and again we can't predict

the earnings of the future perfectly but

we can just look at earnings estimates

based on what companies are reporting

and their forward guidance so from this

chart what you can see first of all in

blue this is the actual S&P 500 earnings

per share actually rep import so as you

guys know earnings have been growing

especially driven driven up by the

Magnificent Six companies that are AI

related so earnings are growing so as

long as earnings are growing the stock

market will keep going higher now how

about the estimated earnings moving

forward so that's what we call forward

earnings per share which are again

Guided by the companies right so you can

see in the red dotted line that

continues to be going up which means

companies expect to report higher

earnings in the next quarter the next

year and that would reflect in higher

stock prices and by the end of 20124 the

forward earnings for cars will be

$275 earnings per share for the S&P 500

by the end of

2025 which is next year we expect

forward earnings for casts of 300 $300

per share and by the end of

2026 forward earnings for cast of $325

so barring any unforeseen circumstances

like monkey pox or aliens Landing or

tsunami or earthquake right companies

should continue to grow their earnings

in the next three years result intrinsic

values of the stocks of the businesses

will keep going up and share prices will

reflect the higher intrinsic values I

continue to to be the most optimistic

the most bullish on AI related stocks

not all AI related stocks the high

quality ones that are extremely

profitable because I think that above of

the earnings growth will come from these

companies your Amazon your Microsoft

your meta your pener your Google your

Microsoft your service now this your

asml your Nvidia your broadcom these are

the companies that are going to make up

the bulk of the earnings growth in the

future now in addition to these

companies of which my portfolio is

mainly focused on these companies there

are some other companies that have been

left behind as you guys know in the last

two years because of very high interest

rates so now that interest rates are

starting to go down these stocks that

have been unloved that have been cast

aside they are beginning to Rebound with

lower interest rates so what are these

specific sectors and

stocks that will finally now benefit

from lower interest rates basically

there are five of these uh types of

stocks number one would be highly

leveraged businesses so what does this

mean now leverage means borrowing okay

so some types of companies they need to

borrow a lot of money they highly

leveraged because of the nature of their

industry example real estate stocks

especially companies in property

development uh in construction they

normally take on a lot of

debt industrial stocks tend to also have

a lot of debt to finance their High

Capital expenditures utility stocks also

usually have a lot of debt as well as

material stocks commodity stocks are

very highly

leveraged so when companies have a lot

of debt what

happens they suffer with high interest

rates because when interest rates are

very high they have to pay a lot of

interest on their Bonds on their

borrowings and that lowers their profits

hence they have not been doing well in

the last two and a half years with high

interest rates so now that interest

rates are beginning to come down you

will notice that these stocks have

started rebounding in anticipation of

lower interest rates for example you can

take a look at the real estate ETF which

is xlre you can see yep it's starting to

Rebound in anticipation of lower

interest rates why because once interest

rates come down these companies have to

pay less interest in less interest on

their loans and their profits will

increase at the same time they can

afford to take more loans at lower

interest rates all right what's the next

one next one be materials or commodity

stocks you can look at the ETF which is

xlb

and you can see same thing it started it

has now started to Rebound with the news

of uh fat cutting rates next would be

industrial stocks look at

xli industrial stocks ETF again you can

see rebounding and uh finally real

estate stocks right

XLR that has also been rebounding okay

now as you guys know generally I don't

like to invest in companies with a lot

of debt I avoid them like the plague so

that's why I tend to not like real

estate stocks I don't like commodity

stocks I don't like utility stocks I

don't like industrial stocks but there

are exceptions of companies in those

sectors that don't have that much high

debt example would be in the real estate

sector I own lows which is the main

competitor to Home Depo and LS itself

doesn't have very high debt but it is in

the real estate sector so as interest

rates come down you you realize that

more people would be able to afford

housing okay because mortgages will come

down so they will buy more houses they

will construct more houses and then of

course lows that sells all these uh

do-it-yourself uh Home Improvement uh

equipment and services they will do well

as well so you can see recently lows has

been rebounding as a result of this next

asset to benefit obviously will be reach

Real Estate Investment Trust now like I

said I don't like to invest in real

estate companies like property

developers and construction companies

but I do invest in REITs very

selectively and personally I tend to

focus on some of the Singapore listed

reats that are of the highest quality

because there's no dividend uh there's

no taxation on dividends so if you

notice that if you're investing in

Singapore listed reads in the last one

week or so there's been pretty good

Rebound in these reads so I continue to

hold these reads and I think they're

still very attractive with very nice

dividend yield and while our interest

from the bank is going to start coming

down it is a good time to lock in some

of these higher rates in these high

quality reats but again remember in

Singapore there are over 40 reads and

out of the 40 reads I would only say

that probably five or six are of high

quality that I would dare to invest in

the rest of them I wouldn't dare to

touch them right so be very careful only

invest in a high quality reads now you

can Al of course invest in US REITs as

well but I don't because I don't like to

pay the 30% withholding tax and of

course if you don't know which reats to

choose you can look at the re ETF

example will be S chh and as you can see

the S chh the uh re ETF uh schwar re ETF

that has been rebounding as well you can

see this was obviously a downtrend uh

when rates were going up reats were

suffering because of the high leverage

of reats right you can see was waving

down waving down waving down waving down

downtrend now it's reversing up where

it's making higher highs and higher lows

you got to wave up you got to wave down

you got to wave up as you guys know I

never like to buy after a wave up I like

to wait for the next wave down before

adding more to catch the next wave up so

don't chase it although the new trend

may be an up up Trend but don't chase it

at the top of the uptrend wait for a

retracement to kind of like add a new

position to that right now the other

asset that will benefit from lower rates

is obviously small to mediumsized

companies so small to midcut companies

which is measured by the Russell 2000

Index as you guys know that has been

underperforming in the last two to three

years because of high rates now rates

are coming down small to mediumsized

companies should be rebounding now

personally I don't comfortable investing

in in individual small to mediumsized

companies because they tend to not have

very strong economic modes they tend to

be less predictable and they tend to

have a bit higher debt but I do have a

position in the ETF to catch their

rebound as rates come down so there are

two things you can look at one would be

the iwm which is the Russell 2000 ETF as

you can see that has been consolidate

consolidating in this range right

this range here and it broke up so wave

up wave down wave up wave down wave up

wave down wave up so it's beginning to

catch into a new uh uptrend all right so

I didn't buy this one I bought the

cousin of this one which is the small

cap growth ETF ticker symbol vbk I've

been holding this for a couple of months

and again you can see it's now on this

uh new uptrend after going through a

crash with high rates now rates coming

down you can see wave up wave down wave

up wave down wave up wave down added

more here now waving back up so that's

the vbk small cap growth ETF next

beneficiary of lower rates dividend

stocks why you see people who buy

dividend stocks they're looking for

dividend yield they're looking for

income and the last two and a half years

they say you know what I don't need

dividend stocks which have some risk

they put their money into money market

fund because money market funds which

invest into certificates of deposits

time deposits and short-term bonds

they've been offering very good interest

rates and that's why you can see that in

the last two and a half years money

market funds have reached a record high

where they're now sitting at $6.24

trillion so that's $6 trillion of money

pared into these money market funds

earning very nice uh 4.8% to 5% interest

rates but that is now coming to an end

so once the FED starts cutting rates

people who have been in these funds are

getting less interest less interest

until they feel that is no longer worth

it to stay in these funds they would

sell these money market funds and rotate

back into the dividend stocks where they

can get a higher dividend yield plus the

prospect of dividend growth because

money market funds there's no growth

right it's just a fixed interest rates

but dividend stocks you have got

dividend growth but of course you have

to pick the good dividend stocks with

pretty good growth so again there are

many examples and some examples would be

your Pepsi which I own uh Johnson and

Johnson Pro and gamble ADP Abott

Laboratories uh abbv Walmart and lows

these are your dividend

stocks

finally as rates come down uh you'll

have bond prices going up so those of

you who have been subscribing to my

ultimate investors Playbook you will

know that I've taken long positions in

the bond ETFs uh using options using

synthetic bullish spread options so I

have gone long onto TLT and that's doing

very well right now I'm up quite a bit

but I'm still holding because I think

there's a lot more upside besides the

TLT which is the long-term treasury born

ETF you can look at the medium-term bond

ETF called the II as well as the

corporate bond ETF l L QD so again

interest rates go down these Bond ETFs

will continue to go up in price over

here you can see the TLT on weekly

candles you can see it was on this

downtrend facing resistance at the 50

moving average where hit it went down it

hit it went down and recently it broke

above that 50 moving average now on this

very nice Trend back up so I went long

somewhere around there and then of of

course you can look at the iei as well

which is the midterm treasury born ETF

and again you can see the same thing you

can see this is the new trend over there

know wave up wave down wave up may have

a bit of a pullback before uh waving up

again this is as rates come down and

finally looking at the

lqd which is the corporate Bor

ETF uh that should uh continue coming

down as well sorry going up as well as r

come down and again you can see this was

a consolidation and it started breaking

Above This consolidation so we should

see higher prices from here so that

summarizes this video I hope it's been

useful and as always if you have

questions comments leave them in the

comment section and do subscribe to the

channel if you have not already done so

may the markets be with you and I'll see

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you