When The Fed Cuts Rates, It’s A Clear Sign

To us at MoneyFlows, when the Fed cuts rates, it’s a clear sign. It’s time to buy small-caps stocks.

Solid Fundamental Data Driving Rising Indices

The Fed hasn’t cut rates yet and stocks of all sizes are rising. The S&P 500, Nasdaq 100, S&P MidCap 400, and Russell 2000 have all gained:

There is a lot of solid fundamental data driving rising indices. There’s also excitement around trade deals, solid inflation numbers, and the belief that AI will deliver meaningful efficiencies.

MoneyFlows data shows risk-on behavior:

There’s another major force driving capital to small- and mid-cap names: the coming Fed interest rate cuts. Highly capitalized firms, which are often small, will benefit as bottom lines heal.

And that’s a good thing for shareholders. When the Fed cuts rates and the economy holds up well, stocks flourish. It happened during the Gulf War of 1991 and 1992, the middle 1990s, and the global currency crisis in 1998.

MoneyFlows data indicates today is similar – a healthy economy with rate cuts ahead. And that’s been great for stocks in the past:

If we get any summertime pullback, have a buy list ready. Seasonal weakness in August and September could bring in volatility. When markets inevitably pull back, being ready to pounce on high quality names is key.

One small-cap name that’s received lots of Big Money attention is Talen Energy Corporation (TLN). It recently announced better-than-expected auction results for the upcoming year. So, power usage should increase, boosting earnings expectations.

It’s had multiple outlier inflows recently:

TLN has three-year sales growth of 45.1% and three-year EPS growth of 77.1%. No wonder it’s up 86% this year so far! It could go higher with rate cuts.

Outlier Stocks Will Soar

Markets rotate and leadership changes. That’s the way of the world. With MoneyFlows, you can spot the winners seeing Big Money inflows.

As interest rates fall, stocks will rise. Outlier stocks will soar, and if you follow the flows, you can see the high risers.

If you are a Registered Investment Advisor (RIA) or a serious investor, take your investing to the next level and follow our free weekly MoneyFlows insights.

Note: the author holds no positions in any securities mentioned in this article.