- Stocks could be poised for a 1995-like rally, according to Wells Fargo.
- The bank's global investment strategy head pointed to falling inflation and a resilient economy.
Stocks are poised for a run-up that hasn't been seen in the last three decades, according to Wells Fargo's head of global investment strategy, Paul Christopher.
The banking veteran pointed to the parallels between today's market and that of 1955, when stocks boomed and the S&P 500 notched a record 77 all-time highs.
Investors could be facing a similar environment today, Christopher suggested. That's because inflation is declingin and the economy "is not collapsing," he said, with GDP expanding 2.8% year-per-year over the second quarter, per the latest estimates from the Commerce Department.
"The Fed is in a good position here if they can be proactive enough," Christopher told CNBC on Thursday, suggesting that central bankers issued a 50 basis point rate cut in September, followed by a "couple more" rate cuts through the end of the year. "We still got a good chance to soft-land this economy," he added.
Markets have eyeing Fed rate cuts for the past two years, after central bankers began raising interest rates in March 2022 to lower inflation.
But inflation is way off the peak seen in the summer of 2022, with inflation rising 2.9% year-over-year in July, the Bureau of Labor Statistics reported.
Wells Fargo expects more volatility coming for stocks over the next few months, Christopher said, pointing to uncertainties stemming from geopolitical tensions and the presidential election. That period could be followed by some significant gains for investors, assuming the Fed eases policy appropriately, he added.
Lower short-term interest rates will likely benefit financial and tech stocks in particular, Christopher noted, as financial institutions gain more in deposits while tech firms see their earnings improve. Those two trends are "exactly what happened in 1995," he said.
"Financials led the way until tech took over, and you had a general cyclical move of stocks going forward," Christopher added. "We would be definitely overweight large-caps in the sectors I mentioned."
Most stock forecasters expect more choppiness in the coming months as investors eye Fed rate cuts and continue to monitor the strength of the US economy. New York Fed economists see a 56% chance the economy could enter a recession by July of next year, per their latest economic projection.