Monday Takeaways: The Fed’s Rate Cut Could Make or Break the Market

Shah Gilani|September 16, 2024

All eyes are on the Fed this week… and its long-anticipated rate cut.

We know a cut is coming… but we don’t know how big.

And the number the Fed settles on could make or break the market.

See what you need to watch out for this week in your Monday Takeaways.

Click on the thumbnail below to watch.

Transcript

Hey, everybody. Shah Gilani here with your Monday Takeaways.

Let’s look back. We have to look back before we look forward.

So what do we have? We have a rallying market.

Last week was a fabulous week for markets. Talk about bounces! Incredible.

The Nasdaq was up 6% on the week. The S&P was up 4% on the week.

And Friday, a week ago to this past Friday, Nvidia jumped 17%.

We can thank Nvidia for keeping the rally going.

So the takeaway from that is the markets look like they want to go up. They are going up.

And if markets look like they want to go up and they’re going up… nothing – well, not nothing, but very little – can stand in their way.

So we’re back in bull market mode.

We have an interesting week because on Tuesday, we get retail sales. They’re supposed to be flat. If they are strong instead, I think the market will like that because that means the economy is just humming along very nicely. That’s going to be fine with the Fed if they cut only 25 basis points. If the economy is doing fine, if retail sales are down, we may not see a 50 basis point cut on the Wednesday announcement from the Fed, but it’s possible.

The odds in the futures market are 50/50. Fifty for a 25 and 50 for a 50 basis point cut.

What’s the takeaway there?

Simple, people. The Fed’s going to cut, and it’s going to continue cutting.

The thing to take away from the Fed meeting isn’t so much the cut, whether it’s 25 or 50 – though that’s, of course, important – what’s really more important is the dot plot. What are we going to see on the dot plot?

Now last month, we didn’t see anything. There was not a single policymaker looking at the dot plot who expected more than two rate cuts by the end of 2024.

There’s a November and a December meeting coming up. The dot plot this time around will show whether or not policymakers are more inclined to cut two more times, which would be three cuts this year. The markets – if they see that in the dot plot – will probably rally.

That being said, there’s something that not a lot of people are talking about, but it’s out there… It’s for those of you who know the history of the markets and Fed rate cuts. The Fed has never cut 50 basis points and us not have a recession. So there’s fear for a 50 basis point cut. Because history says every time they’ve done that, we’ve fallen into a recession.

So a lot of folks who understand the history don’t want to see the Fed cut 50 basis points. That’s almost like, uh-oh, are stocks going to sell off because they know something? Are we heading into recession? Does the Fed see things that we don’t? Are they cutting 50 basis points because they see a recession? Or does the market going to see a 50 basis point cut if we get one as, oh, that always is the precursor to a recession.

It’s going to be a very interesting Wednesday. The takeaways are be careful out there.

Markets want to go up. We’re in bullish mode. We had a great week last week.

We have retail sales Tuesday. We have the Fed on Wednesday, and things look like they want to go up.

It’s going to take a pretty good storm to turn the market upside down. I don’t think we’re going to get one… but if we get a 50 basis point cut, maybe.

Maybe that is so strange that the markets sell off. I don’t think they will because the momentum is pretty darn good right now.

Those are your takeaways for today and for the week.

Be careful out there. Catch you guys next week. Cheers.