Special Bulletin: September 23, 2024

What Does the Fed Know?

Our original title was going to be “Now that was Political.” Of course, that is in reference to the Fed’s 0.50% interest rate cut last Wednesday with just less than 50 days to go until the election. Historically, the Fed tries to stay out of politics and will make its moves well before or wait till after the Presidential elections. Even Alan Greenspan showed more restraint in 2000 while waiting for the “hanging chads” and “pregnant” ballots to be decided by the Supreme Court. Apparently, not so with Mr. Powell & Co. today.

Former President Trump has been vocally very clear on his impressions of the job Mr. Powell has done at the Fed- let’s just say he’s not a big fan. So, perhaps their is a slight bias on the part of Mr. Powell to “help out” the candidate that may more likely reappoint him?

The facts are what they are. Our economy has not yet reached the important inflation target set by the very same Fed. So, why did they bail so early and cut now risking a resurgence of inflation? On Friday, Fed Governor Michelle Bowman, the lone dissenter to the half point cut, issued a statement that said, “we have not yet achieved our inflation goal.” She added that this move could be seen as a “premature declaration of victory.” (Keep your eyes on the PCE announcement this Friday for more clarity.)

Additionally, according to Investor’s Business Daily, the Fed has never embarked on a rate cutting cycle with the S&P 500 valuation (based on a 12-month forward looking earnings estimate) being so high. Currently the future P/E on the S&P is 21.2, according to FactSet. The only other time the 12-month forward P/E was so high was in 1998 with a reading of around 20. FYI: the 1995 rate cutting cycle started with a forward SP500 earnings multiple of less than 15. So again we ask, “what does the Fed know?”

Well, if there is something, it’s not likely to be something as small and momentary as the current Govt. “shutdown showdown” in DC, is it? (Small? Momentary? Only until it’s not anymore and it takes center stage!) 

Perhaps there is something lurking that is much bigger. Could it be commercial real estate? The effects of the draconian style Covid-policies exacerbated under Pres Biden are still being felt and there is much available empty lease space in the big cities. Let’s hope the banks that hold those loans don’t get too nervous. But what if they did? What would the Fed do? Oh! cut rates, of course. Maybe Powell isn’t falling behind the curve. But which curve is he taking a swing at?

One last thought on that: many feel that “they” have tried everything to get rid of Trump. Maybe, just maybe, “others” feel it’s time to beat up real estate for a while and try to “hit ’em there!” Buyer (investor) beware- the Fed sees something. Or if it doesn’t, it has just endorsed a specific candidate who, by the way, has STRONG communist (Maoist) roots. Citizen (voter) beware!

Our Current Market Outlook is still “Uptrend Under Pressure” with a yellow light. The upgrade happened as of 2:30pm on 09/11/24, with the SPX @ 5,518.19. As long as the Nasdaq & S&P 500 continue to trade above their all-important 50-day mav’s, the bulls are in charge. Our Core Four has 2 green, 1 yellow and 1 red light – a slightly bullish stance – while the VIX is testing its own 50-day mav. 

On the 11th of this month we posted here, “If the main indexes close up on strong volume and over their respective mav’s (fat chance for the Nasdaq today) that would complete a short-term positive pattern named by us as an “anchor +3” which may start a push back to all-time highs. The S&P 500 did exactly that and the “anchor+3” pattern went into effect and the stock market has traded up and to All-Time highs, except for the Nasdaq index. Now we will be watching to see if the Nasdaq’s failure to do so may set up a concerning pattern called a negative divergence, or a negative “non-confirmation.” Stayed tuned.

“For it is only right for me to feel this way about you all, because I have you in my heart, since both in my imprisonment and in the defense and confirmation of the gospel, you all are partakers of grace with me.”

Philippians 1:7 NASB 1995

Game plan: Continue to monitor the strength of the stock market and make demands upon it to confirm it’s move to new highs. Deploy capital in a measured manner in the best ideas from your watch list. The possibility of a bull-trap still exists but is waning fast. The price and volume relationship of the leaders and the main indexes always reveals much. Ask Jesus for wisdom. Please pray for the peace of Jerusalem (Psalm 122:6-7). May they prosper who love her.

Ps. Today our Triumphant family remembers the life of a good man, my FIL, on this the first birthday since his passing earlier this year. We miss him: Earl-Dad-Gpa. Thank you for praying for us.

Note: You can learn more about The Triumphant Core Four risk management system by clicking here.

Have a Triumphant day! ®