Fed Goes Big and Signals More to Come: What We’re Going to Do
The central bank is looking to extend the current cycle, and we’re positioned for that.
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Well, the Fed did go big today with a 50-basis point rate cut — and through its set of updated economic projections signals we could see another 50 basis points before the end of this year. While not quite as much as the 125 basis points in cuts the market was looking for this year, it's being swayed by the Fed's suggestion we are likely to see another 100 basis points next year.
That’s more dovish than we and many others expected the Fed to deliver, but as we said earlier this week, if the Fed delivers more than we expect, we’ll take it, and it will be positive for our more interest rate-sensitive positions.
In reviewing the Fed’s updated set of Economic Projections, in addition to its 2025 rate-cut forecast, what also stood out to us was the modest downgrade in the Fed’s GDP forecast for this year to 2.0% from 2.1%. This would suggest the Fed sees the economy softening further in the coming months despite the favorable figures found in the Atlanta Fed GDPNow model. But the way to think about this is the Fed is looking to extend the current economic cycle, and we’re positioned to benefit from that. With that in mind, during Fed Chair Powell’s press conference, we’ll be listening to see to what degree today’s action is a pre-emptive measure.
In response, we are seeing the market trade higher, but remember when you boil it down, the Fed largely delivered what the market was expecting. As we think about that, let’s also remember the market has been rising on that expectation and now sits in overbought territory. This suggests we could see this become a “sell the news” event as traders look to monetize the recent market rally.
What We’re Going to Do
Our actions coming out of this announcement will be to look for opportunities should a sell-the-news mentality emerge between now and Friday’s triple witching. This larger move by the Fed and signaling more to come, paired with this morning’s BlackRock BLK-Microsoft MSFT news means we will have to revisit price targets for several holdings. These include United Rentals URI, Vulcan Materials VMC, Eaton ETN, and others.
At the time of publication, TheStreet Pro Portfolio was long MSFT, URI, VMC and ETN.
