Special chart suggests stocks will rally into the July Fed meeting

Wall Street bull Bill Stone believes the run-up to the July Federal Reserve meeting will add some pep into the bull market.

The chief investment officer of Avalon Advisors builds his case in a special chart that shows in a non-recessionary environment like this one, stocks typically gained. His data goes back to 1929.

“We’re 21 trading days away from the July 31 Fed meeting where they’ll likely cut,” Stone told CNBC’s “Trading Nation ” on Monday. “If in fact it was really an insurance cut and there was no recession involved, you usually see the market move up about 2%, on average.”

According to Stone’s chart, the S&P 500 could rally as much as 8% over the next three weeks based on the historical trend. In a non-recessionary period off year, the worst case scenario is stocks fell 4%. During a recession, the loss was almost six times that.

Right now, it appears stocks are already off to the races. The S&P 500 is coming off its best June performance since 1955. Plus, the index kicked off the second quarter by hitting an intraday high of 2,977.

“The market has been acting as if we’re not going into a recession,” said Stone, who expects the Fed to trim rates by a quarter point later this month.

Responsible for $8.7 billion in assets under management, Stone has a 3,025 year-end price target on the S&P 500, and he thinks he may not be bullish enough.

He’s confident Washington and Beijing will agree to a trade deal this year. Stone predicts it’ll help turn around the global economic slowdown that has been weighing on corporate profits and benefit cyclicals — particularly consumer discretionary, industrials and energy.