Will interest rate cuts continue the U.S. bull market? BMO: The rise of U.S. stocks can continue, but the increase is expected to be lower than the historical average

According to the Zhitong Finance APP, Brian Belski, Chief Investment Strategist at BMO Capital Markets, pointed out in a client report on September 11 that the Federal Reserve's shift to interest rate cuts could extend the U.S. bull market, but future stock returns may be weaker than historical averages.

Belski analyzed the performance of the S&P 500 index during the 10 cycles following the first interest rate cut or resumption of cuts since 1982, finding that 8 cycles achieved positive returns, with an average increase of about 10.4% in the following year. The specific results varied significantly due to differences in economic backgrounds, ranging from a decline of nearly 24% to an increase of over 32%.

Belski emphasized that whether the stock market can rise strongly depends on whether interest rate cuts can extend economic expansion and maintain corporate profit growth. If monetary easing fails to prevent an economic recession, as seen in 2001 and 2007, the stock market will suffer losses.

The current economic situation shows favorable factors prevailing: although the labor market is cooling, the Atlanta Federal Reserve estimates that job growth remains robust, unemployment claims are stable by historical standards, GDP growth is slightly above trend levels, and corporate profits are expected to maintain double-digit growth until 2026. Belski believes that the debate among investors about the extent of the Federal Reserve's interest rate cuts "misses the point"—as long as the economy avoids significant fluctuations, the U.S. stock market can maintain a bull market, although the substantial rise over the past year suggests that future gains may be more moderate than historical norms.

On the industry level, BMO's analysis shows that in the ten interest rate cut cycles since 1982, most sectors rose within a year after the first cut. The communication services, consumer discretionary, industrials, and information technology sectors typically performed well, while the energy sector lagged over the long term. Notably, the energy, healthcare, materials, and utilities sectors, which performed poorly before this rate cut, may see a rebound stronger than average in the coming year.

BMO maintains a target price of 6,700 points for the S&P 500 index by the end of 2025, corresponding to earnings per share of $275 and a price-to-earnings ratio of 24.4 times. The institution continues to recommend overweighting technology, financials, and consumer discretionary stocks, while underweighting healthcare and consumer staples stocks, with specific strategies covering U.S. tactical stocks, dividend growth, and SMID portfolios