The question many people are asking is how many rate cuts will we see from the Fed? Plus a look at the stock market and what is impacting people.
Will Powell Walk Back Some Rate Cuts?
August 19 (King World News) – Peter Boockvar: It was August 1st when I believe we saw a major change of market focus when stocks sold off on the unexpected jump in jobless claims and was followed the next day by a selloff after the payroll miss. And in reverse, we rallied over the past week plus on better than expected claims and retail sales data (along with the reversal of the yen carry trade flush). The catalyst wasn’t anymore what the Fed will do, it was old fashioned economic and earnings fundamentals that finally mattered again.
With regards to the Fed, we’ve already priced in about 200 bps of rate cuts over the coming 12 months so who really cares if they will cut 25 or 50 bps in September (will likely be 25 bps unless the unemployment rate for August jumps again) and it seems that ‘buy stocks because the Fed is done hiking rates and then shifted to the Fed is going to cut rates’ trade has played out. That all said, I would not be surprised if Jay Powell this week tried to walk back some of those rate cuts by telling us that his approach to policy right now will be methodical and measured as he digests the incoming data. And that the only way we get 200 bps of cuts is if the economy rolls over, not just because inflation has slowed. We’ll of course see…
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What will be most interesting this week otherwise will be what we hear from more retailers and we get to see to what extent Walmart’s stability is due to its market share gains or a stabilization in the consumer in terms of their spending behavior relative to the prior few quarters. Target, Lowe’s, TJ Max and Macy’s will let us know, along with many others to follow in the weeks to come.
Stock Market Will Dictate Sentiment And Spending
In case you missed the comments from the UoM consumer confidence index in my Friday Succinct Summation, I want to both give it here again but also repeat what was said in the month before. It highlights and reminds us how important the change in stock prices is to the psyche of the upper income household that owns stocks.
Back in July when the S&P 500 hit its record high, the UoM confidence index which came out soon after said this, “The fact that sentiment has moved little over the past three months obscures substantial variation in attitudes across the population…Not surprisingly, consumers with larger holdings tend to exhibit higher levels of sentiment than those with smaller (or no) holdings, due in part to the financial security and purchasing power afforded by more wealth.”
Fast forward to Friday’s report which captured the mood with the stock market pullback. This month’s stock market gyrations, led by the largest one-day drop in nearly two years seen on August 5, have had little net effect on consumer sentiment. Only consumers with the greatest portfolio exposure – those in the top tercile of stock holdings – saw substantial declines in sentiment, down 6% from last month. In contrast, consumers with the middle tercile of holdings as well as the approximately 30% of consumers who do not own any stock both saw sizable 7% increases in sentiment since July.” The italic emphasis was theirs.
Bottom Line
Bottom line, if we go into a recession, the key dictating factor I believe over whether it will be mild or not, will be the direction of the stock market considering the upper income consumer is holding the US economy on its shoulders, along with experiential spend (like concerts, sports and travel) anything related to AI spend, and government spend (healthcare and the activity driving legislation we all know about).
Egon von Greyerz
To listen to the powerful audio interview with Egon von Greyerz where he issues a dire warning for people in the US and around the world as well as discussing what people need to do to avoid having their money trapped and possibly confiscated and much more CLICK HERE OR ON THE IMAGE BELOW.
***To listen to Alasdair Macleod discuss his prediction for where the price of silver is headed,$3,000 gold and much more CLICK HERE OR ON THE IMAGE BELOW.
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