As the Federal Reserve is expected to cut rates on September 18, Evercore ISI analysts identified key stock groups that could outperform during the easing cycle.
According to their note, the “High Buyback factor” has been a consistent winner in all Fed cut cycles since 1990, regardless of whether the cuts are prompted by a soft or hard landing.
The analysts recommend focusing on companies that engage in significant share buybacks as these stocks tend to generate long-term strategy alpha during rate cuts.
Momentum stocks are also expected to outperform, particularly given the seasonal volatility of fall 2024.
Evercore states that “momentum was the best performing factor in the first half of September,” and it typically manages seasonal volatility better than other factors.
The firm adds that historically, momentum stocks have outperformed in 76% of Septembers since 1990, and this pattern is expected to continue, especially in the current environment with rate cuts and political volatility in the lead-up to the U.S. election.
The analysts screened for potential outperformers in the Russell 3000, highlighting software companies like ACIW, APP, BOX, and YOU, which are well-positioned to benefit from the upcoming rate cuts.
The report also suggests that these seasonal tactics could evolve into a broader “Soft Landing Strategy,” as the economy has shown resilience, much like during the 1995 soft landing.
Ultimately, Evercore ISI advises focusing on high buyback and momentum stocks to capitalize on the Fed’s rate cuts and the ensuing market dynamics.