A Slow Cutting Cycle Is a Blessing in Disguise By Lucas Downey, Contributing Editor, TradeSmith Daily They say markets climb a wall of worry. It’s true. Investing isn’t all rainbows and butterflies. Often, there are emotionally-driven headlines aimed at taking you off course. One major scare facing traders is the narrative around the pace of interest rate cuts. We’ve been on record highlighting the stimulative effects that rate cuts have on companies. Moreover, when the Federal Reserve is cutting rates, and the economy holds up… Stocks soar. But is there something to worry about if the Fed decides to slow the pace of rate cuts? That’s the burning question we’ll seek to answer today. We’ll look over some rich history for guidance. Chances are the findings will surprise you… | Recommended Link | | | | Gold soared to historic highs in 2024. But if you think you missed out, think again. Because millionaire trader Jeff Clark recently revealed his strategy to profit from gold – no matter what the market is doing. It all comes down to focusing on one stock – just one – to profit from ANY movement in gold. Just click here right now to see this “One Stock Gold Blueprint” for yourself. |  | | Higher Interest Rates Are Sidelining Stocks Months ago, Wall Street was cheering for 2025 to be the year of healthy rate cuts. At one point, estimates saw upward of 100 basis points shaved off the target rate. That outlook appears less optimistic today, as current estimates only peg one cut in 2025, coming in June. The single reason for the reevaluation comes down to stronger economic data. Jobs are healthy, and retail sales are chugging along just fine. But sometimes, good economic news can hurt stocks. With a steadfast economy, long-term Treasury bond yields – set by the market, not the Fed – have climbed significantly. These traders fear a reignition of inflation, thus sending the U.S. 10-year yield to nearly 4.8% last week. That’s capped the lid on equities and is likely the biggest driver of recent market volatility. Below shows the relationship between the U.S. 10-year yield and the S&P 500 since the summer. Notice two things: - First, the 10-year yield has jumped significantly since late last year
- Second, note how stocks have struggled as rates surged the last few weeks
Source: FactSet If you’re dialed into the mainstream media, they’ll have you believe that higher rates are the new normal… Even worse, they’re making claims that the Fed is on hold, and that’s why stocks are doomed. It actually sounds like a plausible idea! Just don’t fall for it. Here’s why… Slow Rate Cuts Are Bullish There’s a lot of things to worry about in 2025… But slow rate cuts aren’t one of them. When the Fed is in a hurry to lower rates, often the economy is facing big problems. Recent examples are COVID-19 and the Global Financial Crisis in 2008, when banks were facing insolvency from highly leveraged mortgage bets. The government needed to step in and act swiftly in order to prevent an even bigger catastrophe. These examples are nothing like the situation today, where the economy is quite healthy and consumers are strong. But here’s the message for you today: The pace of rate cuts matter. Going back to 1954, whenever the Fed is swiftly cutting rates (five times or more per year), the S&P 500 struggles the first year, with gains of only 5.2%. Contrast this to slow rate-cutting cycles (less than five times per year), where stocks jump an average of 24.4%: 
With compelling data like this… Be careful what you wish for! Begging for a slew of cuts would mean the economy is turning for the worst. To me, it’s better to have a solid fundamental backdrop. That’s the environment that’s healthy for market gains and big outlier stocks. And TradeSmith can help you find them. A great example that I highlighted back in October is Celestica (CLS). This under-the-radar AI hardware play has been an institutional darling. Even though shares have gained over 60% since that post, I still like it. Much of it has to do with the fundamental case I laid out in the post above. Check out the powerful trend the last year: 
But the reason I’m still a believer in this up-and-comer today comes down to one of my favorite TradeSmith indicators, the Quantum Score. This snapshot gives me both the fundamental and technical outlook instantly. A reading above 70 is right in the Green Zone, which CLS easily lands in at 72.4: 
These are the types of names that are out there… when you dismiss all the bearish pundits. The AI awakening is here… And a few select names will win handsomely. Bring on the interest rate pause… History says that’s a good thing! And ride that wave with all-star stocks using TradeSmith’s software. Now, to be clear, Jason Bodner’s Quantum Edge Pro holds CLS in a model portfolio, and it’s well above the buy-up-to price. So just keep this name on your radar. And in the meantime, don’t fear the interest rate boogeyman. Just keep seeking those all-star stocks that help you beat the market. Regards, Lucas Downey
Contributing Editor, TradeSmith Daily Note from Michael Salvatore, Editor, TradeSmith Daily: Yesterday was the long-awaited inauguration of the second Trump presidency… It’s impossible to say with 100% certainty what will happen in President Donald Trump’s first year back in office. But it’s a safe bet that Trump’s second term will usher in shocking and unexpected moves in financial markets. Don’t just watch history unfold. Trade it. Tomorrow at 1 p.m. Eastern, veteran trader Jeff Clark will show you how to potentially turn Trump’s honeymoon period into The Most Profitable 100 Days of Your Life. Beginning with his #1 trade for Trump’s presidency… a brand-new way to target profits on an asset that some analysts say could soar sevenfold in price this year. You can sign up for this free event now by clicking right here. | 
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