Chief Investment Strategist, The Freeport Society
Hello, Fellow Navigator.
Remember those three rate cuts that the Federal Reserve all but promised this year… the ones that Wall Street enthusiastically priced in?
You might want to curb your enthusiasm.
Atlanta Fed President Raphael Bostic – a voting member of the Fed committee that sets interest rates – threw a big soaking wet blanket on those hopes in an interview he gave on Tuesday:
At this point, I think it’s one [rate cut]. But as months pass, I may move to two or I might move to zero and we’ll just have to see where the chips fall.
Bostic isn’t a crazy lone voice in the wilderness. In fact, his views are far from the most extreme. Last week, his fellow voting member Michelle Bowman suggested the Fed might actually raise rates rather than cut them, saying:
While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further should progress on inflation stall or even reverse. Reducing our policy rate too soon or too quickly could result in a rebound in inflation…
And the day before Bowman’s comments, yet another voting member – Minneapolis Fed President Neel Kashkari – mentioned:
If we continue to see inflation moving sideways, then that would make me question whether we need to do those rate cuts at all.
Now, I’m not going to suggest for a minute that the Fed’s decision makers have a clue what they’re doing. If they were good at their jobs, we never would have had the massive surge in inflation that stubbornly refuses to die.
We’re having this conversation today precisely because the Fed is clueless.
But given the steady drumbeat of skeptical comments coming from voting members… and given the continued high inflation that is prompting those skeptical comments… we probably shouldn’t bet on aggressive rate cuts. And frankly, it’s a mystery to me why the Fed and Wall Street both previously concluded that at least three rate cuts this year were likely.
Has the Fed ever prioritized lowering rates during a booming economy, even when signs of overheating are evident?
What We Can Control
Join my friend and Freeport Society colleague Louis Navellier for a special Election Shock Summit tonight at 8 p.m. Eastern time, where he’ll delve into exactly why this matters… and what impact it will have on the election. Plus, you might be pleasantly surprised by his special guest.
You really don’t want to miss this, so please reserve your seat now by clicking here.
You and I can’t control the Fed. Whether they lower rates, raise rates, or rewrite the rules altogether, it’s out of our hands. No one gives us voting power.
But we can control how we invest and how we choose to hedge our portfolios.
My recommendation here is clear…
We need to stay nimble and focus more on short-term trading rather than simply buying, holding, and hoping for the best.
The past four decades have been a fantastic time to be invested. That’s because we started with a base of high interest rates (significantly higher than today’s levels!) and cheap stock prices. As interest rates fell, investors grew increasingly comfortable bidding up stock valuations. For instance, in 1980, the S&P 500 traded at about seven times earnings. Today it trades at 27 times earnings – nearly four times as expensive.
Corporate America is largely healthy, and I expect earnings to continue growing. But we can’t expect the premium that investors place on those earnings to continue growing. Historically, the S&P 500 has never sustained a price/earnings ratio of 27 for any real length of time. Why would we possibly think it would do so today?
This doesn’t mean you should liquidate your portfolio and hide under a rock. Rather, it means that you should get comfortable adopting a more active approach to investing and be willing to take short-term profits.
So, stay informed, remain adaptable, and prepare for changing market dynamics. And don’t forget to attend the Election Shock Summit tonight to brace for what lies ahead.
To life, liberty, and the pursuit of wealth,