The Federal Reserve Cut Rates – Are More on the Way? Dear Reader, This week has been significant for market-impacting events. First, we had the presidential election on Tuesday. While many didn’t expect it to be called so quickly, it became clear that Donald Trump won in the early morning hours on Wednesday after he did a lot better than people thought he would. (I sent a special election video reaction message to Market 360 readers yesterday, which you can view here.) But there was another market event that we need to talk about today. And, under normal circumstances, it would dominate the headlines. I’m talking about the Federal Reserve’s November Federal Open Market Committee (FOMC) meeting, which concluded today. At the last FOMC meeting, the Fed cut rates by 0.5% – the first rate cut since March 2022. It also noted that a few more cuts should be expected before 2025. In today’s Market 360, we’ll discuss the Fed’s most recent rate cut decision. But before we do, we need to review two key reports from last week that likely influenced the decision: the October payroll report and the latest Personal Consumption Expenditures (PCE) report. Plus, I’ll share which of these events could spark a new surge in the markets… and how you can stand to profit. Making Sense of Last Week's Reports Last Thursday’s PCE report showed headline PCE rose 0.2% in September and 2.1% in the past 12 months. Meanwhile, core PCE, which excludes food and energy, rose 0.3% and was up 2.7% in the past year. Now, I want to remind you that core PCE is the Fed’s favorite inflation indicator. So, while there is still a way to go to reach the Fed’s 2% inflation target, it’s clear that inflation is moderating. Then on Friday, we had a disastrous payroll report. The Labor Department reported only 12,000 payroll jobs created in October, far lower than the consensus estimate of 100,000. The news worsens with the details: The Bureau of Labor Statistics revised down August and September by a cumulative 112,000 jobs. We’ve also now lost 46,000 manufacturing jobs, although some of this is due to the ongoing struggles of The Boeing Company (BA). Additionally, the number of unemployed people has risen by 150,000 people. The unemployment rate remains unchanged at 4.1%, however, because the workforce is shrinking. All in all, this payroll report was a statistical mess and will likely need to be revised when we have more information. But it also drove Treasury yields lower and increased pressure on the Federal Reserve to cut key interest rates, since the Fed is now more worried about the job market than inflation. The Fed's November Rate Cut As expected, the Fed cut interest rates by 0.25% today. So, let’s dig into the details… When the Fed cut rates in September, there was a dissenting vote for the first time in 19 years. But this time around, it was a unanimous decision. However, when it came to future rate cuts, the Fed offered little clarity. And to be honest with you, any cuts beyond today’s are now up in the air. That’s because the U.S. dollar is back at its highest level in three months. Treasury yields have been marching higher in response to the “Trump trade” and the anticipation of a larger federal deficit. (I wrote about this in detail in a previous Market 360, which you can read here.) In fact, as I write this now, the 10-year Treasury yield sits at about 4.33%, up from 3.64% in September. And historically, the Fed does not like to be out of line with market rates. So, with this cut, the Fed is now much closer to the market.  Now, the committee’s official statement acknowledged that it “judges that the risks to achieving its employment and inflation goals are roughly in balance.” This is interesting because the Fed also removed the language from its September statement that it had “gained greater confidence” of inflation moving towards its 2% target. In other words, the Fed is now equally worried about the employment situation and inflation. And that matters because it has a “dual mandate” or achieving optimal levels of both. Then, during Fed Chair Jerome Powell’s press conference, he stated: We know that reducing policy restraint too quickly could hinder progress on inflation. At the same time, reducing policy restraint too slowly could unduly weaken economic activity and employment. Considering adjusting the federal funds rate, the committee will carefully assess incoming data, evolving outlook and balance of risks. We are not on any preset course. We will continue to make our decisions meeting by meeting. Essentially, we are now in a waiting game. Personally, I do expect the Fed to pause rates, meaning we will not get a rate cut in December. But we will have to keep one eye on the economic data and one eye on the Treasury market. Market's Next Surge Begins With Trump From last week’s inflation reports to this week’s Fed decision, each has impacted the markets. But arguably the biggest impact came from Donald Trump’s victory. On Wednesday, the Dow jumped more than 1,500 points, the S&P 500 jumped 2.5%, while the NASDAQ surged 3%. Following today’s FOMC meeting, the NASDAQ climbed 1.5%, the S&P 500 rose 0.7%, while the Dow is relatively flat. The fact is, with this victory, there has never been a more opportunistic and exciting time to be an investor. It’s like we’re on the cusp of the Roaring 20s… America’s railroad expansion… and the Dotcom boom all over again. That’s because Trump is going to spark a growth explosion without precedent. What you need to understand is that Trump is all about business. And when he returns to the Oval Office, his first act could be like rocket-fuel to the AI industry. He knows what it needs to help it reach its true potential and he’s going to make sure it gets it. Therefore, this Trump presidency means a second boom is coming for AI stocks… starting as soon as today. Because before he does anything else, I believe Trump is going to issue an executive order that will hand a fortune to a small subset of AI stocks. The big returns recently made in AI stocks could pale in comparison to the abundance that’s coming. And I see six specific AI stocks that will benefit from this coming boom. Click here to learn more about what the Second Wave of the AI Boom is and how you can profit from it. Sincerely, | .png)
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