Monday Takeaways: The Most Important Players in the Room

Shah Gilani|October 7, 2024

Rah, rah, sis, boom, bah!

A red-hot jobs report sent stocks higher last week…

And caused many analysts to question whether the Fed went too big for its first rate cut in four years.

But the bigger question is… who’s really in charge of interest rates?

And what does that mean for future rate cuts?

Get the scoop in your Monday Takeaways, your inside track on what’s moving your money… NOW.

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Transcript

Hey, everybody. Shah Gilani coming to you with your Monday Takeaways.

First takeaway from last week is “rah, rah, sis, boom, bah!”

The bull market continues. Stocks did exceptionally well on Friday. Was that a surprise?

Yes.

It was a surprise because there were significantly more jobs created. We learned at 8:30 a.m. on Friday that 100,000 more jobs were created. That sent equities higher, not lower.

You’d think the expectation would be, oh, if the economy is doing well, the labor market is strong.

We know the labor market now is the No. 1 attention getter for the Federal Reserve. It’s not inflation anymore. It’s the labor market. They’ve said so themselves.

If the labor market’s weakening, then they’re going cut. But the labor market is showing incredible resilience. Futures were up. Markets opened higher… and they closed higher.

So takeaway from that is we’re still in a bull market. People are “risk on.” The sentiment out there is “risk on.”

Is good news, once again, good news for the market?

The economy is still humming along beautifully. The labor market is still strong. It’s weakened a little bit on a relative basis, but it’s proving that it’s capable of bouncing back.

That’s good news. That’s good news for workers. That’s good news for the unemployed. The unemployment rate fell from 4.2% to 4.1%.

There goes the likelihood of the Fed cutting, said a lot of analysts, and stocks went up.

What’s your takeaway from that?

Stocks want to go up. The trend is your friend. And until that trend changes, that’s the side you want to lean into.

That’s the takeaway from last week.

Now this week, we got CPI on Thursday.

I think it’s going to come in nicely under control, probably around 2.3%. That’s the consensus. I’m going along with that because energy has come down. It’s balancing out now, but it’s not going to be reflected in this Thursday’s CPI print. We’re going to see a better overall number, and the trend will continue to be down for inflation. And then we’ll be back to, well, maybe the Fed can cut 25 basis points at their next meeting. But that’s not until right after the election.

The takeaway from all that is, what are the most important players in that area doing?

Well, those would be bond traders people. And what are they doing?

They’re betting against cuts.

Bond yields have risen. The 2-year is now above 4%. Again, the 10-year Treasury yield is now above 4%. It’s 4.01% this morning.

That’s a long way back from where they were trending downward before, around 3.75% and heading lower. Now we’re right back up after the Fed cut.

What’s the takeaway from that?

The bond market vigilantes don’t think that inflation is completely under control. They think the battle is won, certainly not the war, but they may think the battle’s won. They see the economy growing. They see the Fed perhaps having cut too much too soon, and that would stimulate the economy and then push prices back up.

On top of that, there’s just a mega amount of Treasury issuance before us, and that’s going to impact rates.

That is what I have been saying. We’re going to see higher for longer. Not because the Fed is keeping rates higher for long… but because the market is going to keep rates higher for longer.

So takeaway from that is enjoy the equity ride because at some point, it’s going to come to an end. I think the expectations – and everyone’s raising their expectations – are for the S&P 500 to end the year at 6,000, 6,300.

Those are good bets. Those are really good bets. I say bet that way. Go that way.

Keep an eye on everything, of course. And if the trend changes, then you adjust quickly. But go with that flow because that’s where the sentiment is. That’s the narrative out there.

It’s probably going to pick up speed because we got earnings starting. We got bank earnings starting. So here we go again. Swing batter.

And if the bank earnings are good, the market’s going to rally just like it does always when the bank earnings are good.

And I think earnings, again, for Q3 are going to be good – probably better than expected.

Therefore, you have a runup into year-end. Take advantage of it.

One word of caution… next year’s first quarter is not going to be so easy.

I’ll catch you guys next week. Cheers.