Investors have a LOT of questions about what the recent mega-cut by the Fed means for markets (and their finances!). Check out our latest MoneyShow MoneyMasters Podcast and our Chart of the Week feature for guidance. We’ll tell you what you need to know to stay one step ahead of markets in these volatile times.
Mike Larson MoneyShow.com
You can tell a lot about the market by analyzing what sectors and stocks are leading…and what sectors and stocks are lagging. So, what message are the markets sending out NOW? What should investors consider buying…or selling…as we head into the fourth quarter of 2024?
To get the answers to those questions, I invited Michael Gayed, editor of the Lead-Lag Report and host of the Lead-Lag Live Podcast, to join me for this week’s MoneyShow MoneyMasters Podcast segment.
We begin by discussing the August selloff, the September rebound, and what the wild action says about markets moving forward. Michael lays out a skeptical case. He notes that smaller capitalization stocks are still lagging their bigger cap brethren, while sectors like utilities and asset classes like gold are leading the advance.
That’s typically “defensive” action, indicating it’s premature to sound an all clear for stocks. He goes on to explain why investing is “always about probabilities” – and why it’s so important to pay attention to “disconnects and divergences” when deciding where and whether to commit your capital.
Next, Michael explains which credit market indicator he’s closely watching for signs of renewed trouble. He also names the one currency market trend that could lead to future selling in markets – one that we just got a “preview” of in early August. As the conversation nears an end, we cover topics like China stimulus and what contrarian trades it could fuel…why he has liked gold for almost a year, and still does…and what more speculative subsector of healthcare he favors.
Finally, Michael previews what he’ll talk about at the 2024 MoneyShow Orlando, scheduled for Oct. 17-19 at the Omni Orlando Resort at ChampionsGate. Click here to register.
Mike Larson MoneyShow.com
Unless you’ve been living under a rock, you know the Federal Reserve just cut interest rates by 50 basis points. But you may NOT know how that translates into rates on various financial products and investments. Or that many ALREADY priced in last week’s cut (and then some)!
Take a look at the MoneyShow Chart of the Week below. It shows four rates – the prime rate in orange, the Secured Overnight Financing Rate (SOFR) in light blue, the average 30-year mortgage rate in purple, and the effective yield on 7-10 year corporate debt in green.
What should jump out at you right away? That borrowing costs for high-grade corporations who tap the bond market for money – and US home buyers who take out long-term mortgages – peaked LAST OCTOBER! We’ve already seen corporate debt yields drop about 150 basis points from the peak, while long-term mortgage rates have sunk about 170 bps.
At the same time, we’re only NOW seeing SOFR reflect the Fed’s cut. That means business loans, derivatives, and other financial products tied to that short-term rate are only now being repriced. The prime rate will also drop 50 bps as soon as this chart updates with one more day of data. That means rates charged on variable-rate credit cards and home equity lines of credit (HELOCs) are only now falling.
What happens next? A lot depends on what bond INVESTORS think the Fed’s recent move – and the ones it will make in the rest of 2024 and into 2025 – will mean for growth and inflation.
Right now, the market consensus is that the Fed will engineer a soft landing via its cuts…rather than fuel another bout of punishing inflation. As long as that remains the case, long-term yields can level out here while short-term rates keep coming down. That’s the ideal scenario.
But if investors start worrying the Fed is going too far, they’ll dump bonds. That will drive long-term yields higher even as short-term rates dip. That’s the NOT-ideal scenario.
Me? I remain in the Be Bold / Don’t worry so much camp. And I still like things I’ve recommended in the past, including the iShares 20+ Year Treasury Bond ETF (TLT), up more than 6% in the last 90 days, and the VanEck Gold Miners ETF (GDX), up more than 18% during that same time frame!