Leave well enough alone.

Wise words. If a bit hackneyed.

I know a lot of people who’d be well served to internalize the message from that old adage. Google’s AI gets it. “Intervening further in a satisfactory situation can lead to negative consequences,” the model says. “So it’s best to accept it as is.”

With that in mind, the modern history of non-recessionary Fed rate cuts, small though the sample is, suggests US stocks would likely post “satisfactory” gains over a six-, 12-, 15- and 18-month horizon if both equities and the Fed itself were left to go about their business unhindered.

In this case, “satisfactory” means that if you extrapolate from n=3 (the statisticians among you will be forgiven for emitting a wry chuckle), the US benchmark will be up 25% or so by the end of next year assuming no US recession. That’s the average 15-month S&P return in three scenarios since 1980 when the Fed cut in a non-recessionary environment.

The new dot plot, released alongside the September FOMC decision, suggests the Fed will cut twice more this year and once in 2026. Stephen Miran (which is to say Donald Trump) wants far more in the way of easing than that, though. And he wants it in a hurry. Have a look:

The annotation shows you the already infamous “Miran dot.” If your question is, “Are we sure that’s Miran’s dot?”, the answer’s me laughing. Because contrary to what polite people will tell you, there are stupid questions. And that’d be one.

Here’s what JonesTrading’s Mike O’Rourke had to say (and do note how keen Mike is to include Miran’s other title alongside his newly-minted Fed Board credential):

Fed Governor/CEA Chair Miran said the quiet part out loud and made a mockery of the process by forecasting a 2.875% Fed Funds rate for this year. That is a call for another 125bps of easing in an economy that is not in distress and near full employment. He did an excellent job of expressing his loyalty to the President but also affirmed fears he lacks independence. We suspect he alienated all of the members of the FOMC who will not want to be associated with a politicized perspective. Had he attempted to work within the realm of consensus, they might be more willing to take him seriously. On his first day on the job, he undermined his own credibility.

There you go. That’s the reality of what happened this week at the September FOMC meeting.

As I put it in the editorial accompanying the September 17 evening mailer, Jerome Powell “succeeded in ostracizing Miran, who was made to look like exactly what he most assuredly is: An uninvited, and largely unwelcome, dinner guest.”

Anyway, the figure below plots the YoY change in the S&P’s forward multiple with the YoY change in Fed funds, inverted on the left axis.

As SocGen’s Manish Kabra wrote, “outside of a credit shock, the S&P re-rates with rate cuts.”

In other words, the odds probably favor a stock rally from here based on history and assuming the rate cuts a still nominally independent Fed already plans to deliver. Note the emphasis. No pressure campaign — or I suppose I should say no additional pressure campaign — necessary.

There’s a caveat on the re-rating side. The S&P’s forward multiple already counts in the 96%ile on a five-decade lookback, so you might fairly ask if we’ve reached the point of diminishing returns on that front. I’d say two things.

First, even if rate cuts can’t do much to inflate valuations any further, they can at least help justify current valuations, or make them seem less crazy for high-growth companies. Second, although some valuation and breadth metrics long ago surpassed levels seen in 2000 and 2021, the index forward P/E isn’t one of them.

The table above, also from SocGen, shows you how high the S&P would trade in the event rate cuts succeed in pushing multiples to the dot-com bubble peak, and that multiple’s applied to a $300 aggregate index EPS assumption for next year: 7500.

How realistic is that EPS assumption?, you might ask. Not totally unrealistic, I’ll say that. The top-down (i.e., chief equity strategist) consensus is $295. Bottom-up (i.e., company analyst) consensus is $305.

So, coming full circle, if you’re a man who’s determined to engineer an asset bubble (and I know such a man), it might be worth considering the very real possibility that the US equity boom is in full-swing on its own and doesn’t need any additional impetus, particularly not if that impetus involves doing something controversial like, say, conjuring excuses to fire a Fed Board that’s already doing what you want.