The Big Cut - Market Update September 16-20, 2024
Fed Cut Rates So What Now?
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Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Summary of Topics:
Economic News
✂️The Fed Big Cut - what to expect now
Company News
📲Instagram Kids - A Much-Needed Update
💪🏾Amazon’s Power Play - New Return to Office Policy
Stats of the Week
📈11.3% - The only number you need to focus on when investing
🏭$1.6 Billion - Three Mile Island Nuclear Plant is back to live
Looking Ahead
🥱Yawn
Sports I Love
😩Man U at least did not lose
🥳Real Madrid remains my joy
Markets
Slow and Steady wins the race. The S&P 500 has slowly risen to new all-time high. After the Fed announced a 50-basis cut to the Fed Funds overnight rate, the stock market initially took a dip. However, on Friday investors got excited probably cause it was the weekend and took the market to new heights.
Tale of the Tape
Economy
On Wednesday, Papa Powell took stage and made a surprise announcement. A 50-basis cut to interest rate, bringing the Federal Overnight interest rate to 4.75%-5%.
🔎Details: It was largely expected for the Fed to begin its interest rate pullback with a 25-basis point reduction and slowly ease its way to bringing rates down. However, Jerome triumphantly announced a 50-basis cut as the Fed declared victory over inflation.
🗨️In His Words: Jerome Powell told reporters, “Our patient approach over the past year has paid dividends. Inflation is now much closer to our objective, and we have gained greater confidence that inflation is moving sustainably toward 2%.”
What He Really Wanted to Say
However, there is a new battle the Fed is faced with. The Labor Market has been cooling all year. The Big rate cuts indicate the Fed wants to ensure that the second part of its mandate (1. Price Stability aka inflation and 2. Full Employment aka healthy labor market) doesn't get destroyed by its war against inflation.
💬In His Words: Jerome Powell told reporters, "The labor market is actually in solid condition — and our intention with our policy move today is to keep it there."
In Basic Words: Things looking okay right now but we don't want it to go sideways on us.
😃😟Takeaway: Depending on your perspective the interest rate cuts can be a great thing or a negative thing.
For Savers: For those who have extra cash or saving for specific near-term goals i.e. cars, weddings, etc. The rate cuts suck because banks are going to cut interest rates on savings accounts.
No more risk-free money-making 😭
You probably already received emails about the rates on your savings accounts going down.
For Investors: this could be great for your investments. Warren Buffett says Interest Rates are like Gravity for Stocks. As rates decrease, stocks tend to increase as investors search for returns.
For Debtors: this is great news. Expect rates on credit cards, auto loans, student loans, etc. to drop soon. This can give you breathing room and help put more money into your principal.
This is only for floating interest-rate debts.
However, it will not be nearly as quickly as with interest rates. So might be a good idea to call all your loan companies and ask for lower rates.
For Homeowners: Depending on when you bought your home this could potentially be a good opportunity to refinance. Keyword: POTENTIALLY.
For most people, you should wait until rates drop at least 1% or more to make it worth all the costs of refinancing
If you happen to have an automatic adjustable rate with no fees, you might be getting a few letters in the mail soon.
For Home Buyers: Rates have already been dropping in expectation of the Fed dropping rates. Right now, the average mortgage rate is about 6% and will drop further in the next few days. It's a good chance to shop around and potentially get some great rates.
However, find a way to get an automatic adjustment as part of your loan. This way as rates fall, your rate will fall as well.
The Fed expects to cut rates two more times this year. However Powell made it clear, that the era of ultra-low rates is gone.
My Takeaway: Make no rush decisions. The 10-year Treasury Yield has been trading below 4% since August with investors and traders anticipating the Fed making this move. For you and me, the Fed's overnight funds rate does not matter that much. The 10-year is what every consumer loan interest rate is tied to. After the announcement, the treasury yield ticked up from 3.6% to 3.7%.
Companies
On Tuesday, Instagram announced a redesign for teen account to give parents more control over teen messaging and content.
Background: Instagram has been facing intense pressure from parents, regulators, and lawmakers on its handling of content targeting children. That pressure has resented turned to law proposals that would force Instagram to change the way it handles content.
🗨️In Their Words: Instagram's head Adam Mosseri said, "I think over the long run, it's going to be in our interest as a business to earn more trust from parents."
What He Really Meant: Better change the way we CHOOSE rather than be forced to change in a way that sucks for our dollars.
🔎Details: Instagram is adding new protective setting that will apply to any account owned by someone 18 years or younger. 16-year-olds will require additional parental permissions. The changes include:
Age verification system
All teen accounts will automatically be made private
Strict messaging settings to ensure teens can only be messaged by people they follow or connected to
Limitation on what accounts teens can see content from.
Parents will see the activity of their children such as content topics and people being messaged
Takeaway: This is a reaction to potential laws that would force Instagram and other social media platforms to change the way they operate. Incentives are everything and the incentive currently staring at Instagram was a forceful change of business. It was either get destroyed by government action which usually acts more like a missile than a sniper shot. Or take actions themselves to ensure they continue making money off kids.
Instagram is learning from YouTube which has YouTube Kids.
Andy Jassy, CEO of Amazon, is hitting the reset button and taking Amazon back to 2019. He announced on Monday that all workers will be required to be back in the office five days a week beginning on January 2.
🗨️In His Words: "When we look back over the last five years, we continue to believe that the advantages of being together in the office are significant."
Takeaway: As the strength of the labor market dwindles, I expect this trend to kick into high gear in 2025. This shows that employers are feeling emboldened once again to force their choices on their employees because they know options are limited.
💪🏾My Takeaway: This is a Power MOVE.
Stats of the Week
📈11.3%
Pretty much every company in the S&P 500 have reported earnings for the second quarter. On aggregate, the S&P 500 earnings grew 11.3% and revenue rose 5.3%, according to FactSet. The revenue growth is the 15th consecutive quarter of growth for the S%P 500. The earnings growth is the highest since Q4 2021.
Takeaway: Stock prices follow company earnings. Always remember, the stock market represents REAL companies. If those companies make money, the stock market will rise. This is the only thing to know when investing, everything else is NOISE.
Constellation will be spending $1.6 Billion over the next 4 years to get the nuclear plant ready for prime time.
🔎Details: Constellation Energy and Microsoft revealed a power purchase agreement to provide Microsoft with about 835 Megawatts (enough power for 700,000 homes) for its data centers. To meet this need Constellation will be reactivating one of the reactors on its Three Mile Island nuclear plant in Pennsylvania.
Three Mille Island has been shut down since 1979 after a partial nuclear meltdown that caused the US to sour on Nuclear Energy. In the last decade over 13 reactors have been taken offline.
🔁Takeaway: Nuclear is BACK! Amazon has an agreement to buy a nuclear-powered data center. The government is providing billions to get the industry back going. As AI, EVs, domestic manufacturing continues to grow. The need for energy grows as well, nuclear is clean energy solution for everyone.
Looking Ahead
Sports I Love
😩Man U
At least they did not lose.
🥳Real Madrid
My JOY!! The team I can count on!