Chief Investment Strategist, The Freeport Society
Will they or won’t they?
This is the question investors have been asking for weeks. And it seems that the answer is: “They will.”
At this week’s Federal Reserve meeting, Chairman Jerome Powell came about as close as he ever has to telegraphing their next move, saying “a reduction in our policy rate could be on the table as soon as the next meeting in September.”
Wall Street took “could be” to mean “is happening with 100% certainty.” Or at least that’s what the futures markets are now pricing in.
According to the CME FedWatch tool, the futures market is not only pricing in a 100% chance of a cut… it’s pricing in a 55.5% chance that the Fed cuts by 0.5% rather than the customary 0.25% (see chart below).
We’ll see about that.
The Fed still insists it’s working toward a 2% targeted core inflation rate. As of the last report, the Fed’s favorite inflation gauge – the PCE rate, excluding food and energy prices – was clocking in at 2.6%. That’s well above the Fed’s target.
Yet we’re starting to see early signs of the economy cooling. The unemployment rate just popped from 4.1% to 4.3%. And while the labor market is still historically strong – and a single data point like that could just be statistical noise – there are other signs of softening, particularly in consumer spending.
Are we looking at the possibility of stagflation – that nightmare scenario of a sluggish economy coupled with rising prices?
Stagflation was the death of Jimmy Carter’s presidency… and you could argue that the first whiffs of stagflation were what doomed Joe Biden’s reelection plans, leading him to hand the reins to Kamala Harris.
We’ll see. But the best thing you can do as an investor to protect yourself from this nightmare is to build an all-weather portfolio proven to withstand anything this economy can throw at it. That’s what we’re doing at The Freeport Investor. Join us.
With that said, let’s go over everything we discussed this week at The Freeport Navigator…
The One Word That Has Defined Investments in 2024
We’re living in a narrow market where artificial intelligence is fueling Nvidia’s bubble, while inflation and rate cuts remain surrounded by uncertainty. You can continue reading Monday’s essay here.
Exponential AI Progress in an… Iconic Glass Company?
Make no mistake, this glass company plays a valuable role in the second phase of the AI Revolution. Read Eric Fry’s out-of-the-box take here.
How to Invest for the Rest of 2024
While this country’s mountain of debt and a havoc-filled election will bring surprises, we want to help prepare you for any outcome. To finish reading Charles’ guide for the rest of 2024, click here.
A New Wave in Exponential Progress: AI Stocks Set to Soar Next
Chip stocks like Nvidia have long been the craze… but now it’s time for a software stock boom. Dive into what Luke Lango has to say here.
What a Harris Administration Could Do to the Economy
We’re on high alert for the dangers of an incoming Trump administration, but what about an incoming Harris administration? Read on for answers from Justice Litle.
Looking Ahead
Reading the headlines today reminds me of that old Chinese curse: May you live in interesting times. Our times are anything if not interesting. And over the next week, the most interesting news will be only tangential to the economy and market.
At the top of the list is the election. Just two weeks ago, it still looked like Donald Trump would win in a crushing landslide… and tilt both houses of Congress into Republican hands. The race was over…
Not anymore.
This is going to be a proper contest. After raking in over $300 million in campaign donations in July, Trump and Harris are now in a statistical dead heat in the polls.
You know my view. We’re screwed no matter who wins. Neither candidate understands economic freedom let alone has any intention of promoting it with anything other than hollow words. And neither has a plan to get the $35 trillion national debt under control.
Yet the winner of the election does have implications for the stock market.
A Trump win, for example, would be more bullish for cryptocurrencies, small caps, and other “FOMO” trades. A Harris win would likely be slightly more bullish for bonds and for the dollar.
As the markets digest the election odds, you’re going to continue to see sector churn as “Trump trades” and “Harris trades” duke it out.
And then, of course, is that ultimate Age of Chaos wild card… the Middle East.
While Israel has not claimed responsibility, it’s assumed that it was behind the assassination of Hamas political leader Ismail Haniyeh in Tehran. Iran has threatened massive retaliation… but it’s too early to know whether this is just rhetorical bluster or if Iran even has the ability to punch back given the utter failure of their last missile volley against Israel, which was mostly neutralized with the help of U.S. defense systems.
Will Iran launch more missiles?
Will it give Hezbollah the green light to attack Israel from the north, spreading the Gaza war into a broader regional conflict?
We’ll know soon enough.
We live in interesting times…