Cut interest rates or continue the US bull market? BMO: US stocks can continue to rise, but the increase is expected to be below the historical average

The Zhitong Finance App learned that Brian Belsky, chief investment strategist at Bank of Montreal Capital Markets (BMO Capital Markets), pointed out in the September 11 customer report that the Federal Reserve is shifting to cutting interest rates or continuing the US bull market, but future stock returns may be weaker than the historical average.

Belsky combed through the performance of the S&P 500 index in 10 cycles after cutting interest rates for the first time or resuming interest rate cuts since 1982 and found that the 8 cycles achieved positive returns, with an average increase of about 10.4% over the next year. The specific results ranged from a drop of nearly 24% to an increase of more than 32% due to significant differences in the economic background.

Belsky stressed that whether the stock market can rise strongly depends on whether interest rate cuts can prolong economic expansion and maintain corporate profit growth. If monetary easing fails to stop the economic recession, such as in 2001 and 2007, the stock market will suffer losses.

The current economic situation shows that favorable factors prevail: despite the cooling of the labor market, the Atlanta Federal Reserve estimates that employment growth will remain stable, the number of unemployment claims is stable according to historical standards, GDP growth is slightly higher than the trend level, and corporate profits are expected to maintain double-digit growth until 2026. Belsky believes that investors argue that the Federal Reserve's interest rate cut “misses the point” — as long as the economy avoids major fluctuations, the US stock market can maintain a bullish market, but the sharp rise in the past year indicates that future increases may be more moderate than the historical norm.

At the industry level, BMO analysis shows that in the ten interest rate cut cycles since 1982, most sectors rose within one year after the first rate cut. The communications services, non-essential consumer goods, industrial and information technology sectors generally perform well, while the energy sector has been lagging behind for a long time. Notably, the energy, healthcare, materials, and utilities sectors, which had weak performance before the current rate cut, may rebound stronger than average over the next year.

BMO maintained a target price of 6,700 points in the S&P 500 index at the end of 2025, corresponding to earnings of $275 per share and a price-earnings ratio of 24.4 times. The agency continues to recommend increasing its holdings in technology, finance and non-essential consumer goods stocks and reducing its holdings in healthcare and essential consumer goods stocks. Specific strategies include US tactical stocks, dividend growth, and SMID portfolios.