VRA Investment Letter: The Feds Rate Cutting Cycle Has Arrived…and the Markets Like It.
/Good Thursday morning. The Feds rate cutting cycle has arrived. Going against 90% of economists predictions…who predicted a .25% rate cut…J Powell and the Fed actually got this one right by cutting by .50%. It turns out two guys from Texas did too, as Tyler and I have been on record (for 2 months) predicting a .50% cut.
And the markets like it. Following big gains in global markets overnight, markets are sharply higher in the US, with Dow Jones +500 points, Nasdaq up a big 425 points (+2.2%) with small caps continuing their recent tear (+2.6%). Broadening action continues to build…massively bullish.
Also in today’s trading, Bitcoin rallying 5% to $63,000. We’ve been pounding the table on these positions…we continue to.
From yesterdays VRA Letter:
“Our view is unchanged. The Fed should absolutely cut by .50%. The wildcard? The State wants their side to win in November…this is not really up for debate…and their side is Harris all the way, even as they claim to be neutral politically (they most certainly are not). A .50% cut keeps the stock market ATH’s and animal spirits flowing, which boosts Harris chances of winning…considerably IMO. Again, I’ll be surprised if the cut isn’t .50%.”
Again, this was the only decision that made sense. We’ve consistently called for and predicted a .50% cut, not because the economy is desperate for it…because the economy could hardly be on firmer footing…but because our 41 year highs in inflation have now flipped to disinflation. Remember, without shelter and insurance, the CPI would have already been below the Fed’s 2% target for (roughly) 6 months.
The larger issue with inflation, and the reason the Fed was right to cut by .50%, is that disinflation will only pick up speed. Combined with 10 year yields collapsing to 3.7%, while the FFR remained sky high at 5.33%, the Fed was ridiculously offsides…and they still are.
With 10/12 VRA System screens bullish, along with the fact that we’ll soon enter the best period of the year for stocks (Q4), we want to stay long and strong the market. This remains our call. Don’t fight the tape, don’t fight the Fed, especially during a generational bull market. And there are a lot of people offsides on this bull market. Bearish seasonality is a crowded trade.
VRA Market Update
Another day with ATH’s, this time for the S&P 500, Dow Jones and Housing (HGX, XHB). Even as we’ve entered the worst two weeks of the year (analytics), we’re just not seeing these concerns in the broad markets. Bearish seasonality is a crowded trade. And broadening continues to take place, with continued strong internals and another day with fresh ATH in NYSE breadth.
In addition to Hyman's correct call for a .50% cut, he put the following out this week; Consumer net worth is up almost 11% over the last year. When home prices and stock markets are hitting ATH after ATH, history tells us it pays to continue being long stocks.
VRA Bottom Line: with 10/12 VRA System screens bullish, along with the fact that we’ll soon enter the best period of the year for stocks (Q4), we want to stay long and strong the market. That’s our call, as of today. Don’t fight the tape, don’t fight the Fed. And there are a lot of people offsides on this bull market.
Fourth Quarters Are the Strongest Quarter…We’re Almost There
A Generational Bull Market Meets Trumps Second Term (our call)
Finally for now, congratulations to our great friend Wayne Allyn Root, who just interviewed Trump for the 16th time. Remarkable. We were proud to sponsor the interview.
https://rootforamerica.com/root-reaction-with-wayne-allyn-root-exclusive-interview-with-president-donald-j-trump/
Until next time, thanks again for reading…
Kip
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