In today's episode, Tyler breaks down the latest market action following a highly anticipated Federal Reserve FOMC meeting. We'll dive into what the 50 bps cut means for the future for stocks, and perhaps more importantly, when the Fed will restart the money printer (Hint: It's already happening). Finally, Tyler wraps with a recap of today's sector performance and the latest in our VRA Commodity Watch. Tune into today's podcast to learn more.

Don’t look back because the market is closed. Good Wednesday afternoon, everyone. Tyler Herriage here with you for today’s VRA investing podcast. Hope you all had a great day out there today. It was certainly an eventful day, much anticipated day here as we had the final FOMC meeting for the Federal Reserve ahead of the November election. So we’re going to cover that here in some detail today. We’ll also cover our markets volatile action here today. Started out the day mixed, got a big pop higher after the Fed decision, ultimately finishing slightly lower on the day to day.

Not negative across the board here, though. And we’ll also see what we expect going forward as we’re about to wrap up another quarter here. I know that’ll surprise, are not surprised. But gosh, this year has gone by fast, hasn’t it, as we’re about to enter Q four here with just eight trading sessions left in the month of September. Before we get into Q four kind of action. So we got a lot to cover here today. So we’ll go ahead and, and jump right in. We got a bit of a tell really ahead of the Fed decision today with about 90% of polled economists looking for a 25 basis point cut.

[00:01:32]:
Now, if you’re a regular listener with us here, you know that we are deeply contrarian investors and especially not even as much when it comes to market watchers, but very much so when it comes to these economists. There are so many of these economists that are on the Fed’s payroll, really. They’re paid to toe the party line there. So when you get a big number like that where 90% of economists are looking for one thing, it’s almost a certainty it’s going to go the other way. It’s a reminder, reminds me of 2021 at the end of 2020, after we had had our v shaped recovery in the market, after Covid, there were of a certain poll of economists, 100% of those economists polled said that there would be a recession in 2021. Where did that never appear? We used that as an opportunity to go extremely long the market at the time, and it’s exactly what we got. 2021 was a very good year for the market. So again, that was a bit of a tell this morning when 90% of economists were polled looking for a 25 basis point cut.

Tyler Herriage [00:02:48]:
Now, as Kip said, I was in the camp of calling for a 50 basis point cut. I just didn’t think that Jay Powell would do it. You know, I, but going back to my podcast on Monday where we talked about roughly 80% of these Fed voting members, if not more, now likely are all registered Democrats. Right? So they’re going to want to help their party out as much as possible. And given that this was the final FOMC, the last chance for the Fed to cut rates ahead of the election, this was their best opportunity to help out the Democratic Party as much as possible. And that’s what we got today. The Fed decided to cut by 50 basis points. Now, again, that could have been partially due to the fact there is no October meeting.

I think that definitely played a part in it as well. But the Fed funds rate now being taken down to a 4.75% to 5% here. And on the news, our major indexes really liked this news today, at least initially, maybe not so much at the end of the day. We went from being, you know, flat to lower on the day. The semis especially shot up all the way to up over one and a half percent after the news. We did ultimately settle lower on the day, which I’ll get to here more in a minute. Kind of diving into more of the Fed action here. We had one dissenting member here on the Fed, Bowman, Fed governor, dissenting in favor of a 25 basis point cut today, which I didn’t know this, but shockingly, the first dissent since 2005, if I saw that correctly today.

So really interesting. They almost always make these moves in unison or at least try to present a unified front here. But as Kip pointed out today on Twitter, again, kind of going back to the dim or the Fed governors helping out the Democratic Party, this is the final rate cut opportunity for the Fed here. So Jay Powell can talk a big game like he did today in his press conference, that, oh, they feel good, inflation is under control and, oh, the labor market remains strong, but we wanted to get out in front of it here. We don’t think the decision today really has much to do with that at all. Likely very politically motivated here. We’ve all known for some time now that the Fed is not an independent body anymore. In fact, we’ve seen leaked interviews from Fed members saying that Jay Powell really had something against Trump.

[00:05:37]:
He does not like Trump. So we know that that’s how he feels here. But going forward, we can expect two more rate cuts this year is essentially what they said. Those will be 25 basis point cuts. So the 50 today to kick it off and then two more this year, ultimately 100 basis points or 1% worth of cuts by the end of 2024. So, you know, we’ll look for that. Now we can kind of forget about the Fed though, which is rather nice when you don’t have to hear from the Fed for a long time. I’m sure they’ll roll out plenty of Fed speakers, enough to make you nauseous.

But we won’t have any major policy decisions for the next month and a half now. So that is something to look forward to here. And, you know, I’ll give Jay Powell this absolutely in regards to going with 50 basis points here today. We talked about this to the rate hike side as well, that when the Fed makes policy decisions like this, it takes twelve to 14 months for those effects to be fully felt by the market. So, you know, ultimately not a terrible decision here. That’s referred to, though, as the lag effect. So it is going to take some time for these to hit the market. And that’s why the argument has been made so many times that the Fed is behind the curve here and they should have started cutting rates at their last meeting in August, if not earlier.

[00:07:08]:
And to go back to a point that Kip and I have both made for the last year and a half now, and even further back than that, that each one of the Fed’s final rate hikes ultimately led to them having to cut rates today. Right. Each one of those final, even the quarter basis point hikes or 25 basis point hikes, those all force the Fed’s hand in having to cut sooner rather than later. And likely is an example here that the economy may not be as strong on the surface as it appears. We’ve all seen the downward revisions to jobs data. We all know that inflation again and again has been vastly underreported by these government statistics. So yes, this is absolutely the right call to cut rates today, but we’ll see if it’s too little, too late. Now, we’re not calling for that at all.

We continue to look at a market here that in an economy that remains strong. Right. The Atlanta Fed just raised their Q three GDP estimates roughly. I saw a poll today as well. It’s really in the 2.9% to 3% range. That’s, that’s growth right there. Yes, jobs numbers have been slowing down, likely more than have been reported and likely even more so because so many of those jobs are either government jobs or a worker who went from being full time to now being part time, having to work two jobs to pay the same bills. So there’s a double counting there as well.

But point being, we’re not in contractionary territory here. We’re not seeing negative GDP prints, no expectations for negative GDP prints no negative job numbers as well. So, yes, slowing but not contracting. And that is a key point here for us going forward. And I’ll get to that here more in a second as well. But back to this Fed decision. One last point, and the real good news here for this market from market watcher Ryan Dietrich, who does some fantastic analytical work on the market. He went back and looked at when the Fed has cut rates with stocks at or near all time highs, which we did hit some more of today, which I’ll cover here later.

[00:09:29]:
But when the Fed has cut rates with stocks near all time highs, happened 20 times. The S and P 500. If you want to take a guess here, how many times out of the 20 do you think it was higher 100% of the time, with average gains for the S and P 500 of 13.9% over the next year. So we think that this year has the potential to be even better than that. I think we’d be surprised if it wasn’t better than that, given the fact we’ll just be entering year three of this bull market again. Bull markets, on average, last four to six years. We think this is going to be more like the recent bull market we had post financial crisis, which was a ten year bull market only derailed by Covid. If Covid hadn’t happened, we’d likely still be in that bull market.

So we think that this does have potential to be that bull market again. We talk about it here time and time again, that we are in the innovation revolution, a very modern example of that, and the roaring 2020s as well. If you haven’t had the chance to read our book, the big bribe, that’s where we lay it all out. And I do want to talk about one point that we made in the big bribe as well. One factor. We used to talk about this a lot more. We haven’t talked about it as much lately because there really wasn’t as much to write about but money supply. We know that after 2020, our money supply shot through the roof, up roughly 37% in just a couple of years after Covid happened.

[00:11:11]:
And that’s really what kicked off inflation here. Of course, when you’re adding 36%, 37% to the money supply, things are going to have to be repriced at that point. And it’s exactly what we’ve seen and why inflation was so much higher than the 9% number that they reported. Based off of the money supply metrics, it’s probably closer to 37%. You’ve seen it across the board, from car prices, insurance prices. Prices at the grocery store, where you had increases of 40, 50, even 60%. Yeah, we’ve leveled off a little bit, but it’s been a stair step approach. Rate of change inflation.

Right. Instead of absolute inflation, where you go to a point where for absolute inflation, all right, prices went up 5%. Let’s see if we can get them back down 5%. That’s not what we have. We have rate of change inflation that we go the stair step approach higher and higher every time. So you rise by 5%, fall by two and a half percent, rise another 5%, fall by two and a half percent. You’re never getting back to those original prices again. And that’s just what happens when you have a federal reserve that continues to add to its money supply off of any type of a standard, like we were taking off the gold standard in 71.

And it’s why the dollar has lost 97% of its purchasing power since the creation of the Federal Reserve in 1913. So it really has this inflation story, as we’ve talked about here, a lot. And I know we’ve got a great smart money audience here, so I’m probably not saying a whole lot that you don’t know already, but that is the inflation story there. It had almost nothing, I won’t say nothing, but almost nothing to do with the supply chain issues that they made such a big deal about. Has very little to do with corporate greed as well. No, it came from government greed, where they wanted to spend more money, and Jay Powell gave them the go ahead to do so. If you remember, during COVID Powell, at an interview after interview, was saying the government has the ability to spend more money, make the bill even bigger, is what he said. And I’m paraphrasing, but that is what he said.

[00:13:34]:
And then he went on 60 minutes and basically told us they don’t even have to print the money, they can do it digitally. It’s that easy. Right. He very openly said that in a 60 minutes interview. So fast forward a couple of years, and of course, inflation was out of control, but again, due to government greed here. Now fast forward to more recently, after the Fed changed gears and got into a rate hiking cycle, they also paused money supply. We actually had a slight, very slight contraction in the money supply over the course of their rate hike cycle. Now fast forward to today, and we have seen an uptick now in m two, money supply just barely below the peak that we saw in early of 2022.

And what the point really is here is that, yes, we’ve started to get into a disinflationary environment. And the Fed, if anything, is scared mostly of deflation. That is not what they want in this era and in this age of financial engineering, because our economy, our financial institutions and our markets have become addicted to these easy money policies. So it would be of interest for you as an investor to know that money supply is back on the climb. This is what we wrote about in the big bribe. And I went back to go look at it again today and how, just how timely it was. But if these are lessons from Kip’s mentors here, and if you go back and read books, study the economy when the money supply is growing, you do not want to be short stocks, you want to be aggressively long the market when money supply is growing. So that is another reason here.

[00:15:30]:
We have a high degree of confidence that this market, in this bull market run, will continue here, as we have m two money supply going back to the highs again here, heading back to the upside, which means more liquidity in the market, more money pursuing fewer goods, and that again will again lead to inflation. At some point, it’ll likely be underreported. You know, we’ll see, we’ll start to address that when the time comes. But really, what it means is the continued devaluation of your dollar. That is the real hidden tax. And it’s why we’ve said, and we’ve tried to pound the table as much as humanly possible to anyone who will listen, that in that kind of environment, you must own inflationary assets. This is not an environment where you can shove dollars under your mattress and hope for the best, because those are going to continue to be devalued. So buy inflationary assets.

I mean, owning stocks, owning precious metals, gold and silver, owning bitcoin, big believers in bitcoin here as well. And of course, real estate. So pick whatever your favorite of those assets are. Right. And we look at it as a diversified approach. We want to own a little bit of all of those things and continue to use monthly dollar cost averaging into all of those different areas here. So again, I can’t emphasize that point enough here, because it’s not that these assets are intrinsically worth more, but your dollar will be worth less every year, especially as the money printer really starts to ramp up. And, you know, we likely won’t get another Covid like shock of ramp up, but it’s going to be a steady, slow grind higher for money supply.

[00:17:28]:
So again, we have a high degree of confidence in that call here in owning inflationary assets. One other factor here before I get to our market action that does continue to amaze us here is the amount of capital on the sidelines. Money market accounts remain near all time highs despite this incredible run we’ve been on. I mean, we just hit, yes, we finished lower on the day, but we just hit all time highs in the Dow Jones and the S and P 500. Right? So it’s amazing how much money has missed out on this massive move higher that we’ve seen since the October 2022 lows. So now that rates are heading lower, those money market funds are going to be returning less as well. So that cash is going to be forced off the sideline to seek higher returns in the market, seek higher returns in precious metals, bitcoin and real estate as well. So again, the key theme here is liquidity, liquidity, liquidity.

And we see it coming in spades for this market here. So our view does remain unchanged. We’re still in the early innings of this bull market. We have a long way to run to the upside and you want to be long this market. So let’s take a look on that note at our market action on the day. We finished with three out of our four major indexes lower on the day. We were led by small caps here, which have been on a phenomenal run as well. Now just up slightly on the day, but finished positive, up 0.04% to 2206 for the Russell 2000.

Next up here was the Dow Jones, down a quarter of 1% to 41,503, but again, did hit an all time high earlier in the session. Then I’ll also point this out. The transports have continued to head higher and did finish positive today. That is a trend that we want to see continue. Next up, the S and P 500 down just under three tenths of 1% to 5688. 2018 did hit an all time intraday high today. Lastly, the Nasdaq down also roughly three tenths of 1% to 17,573. So yes, less than ideal action today.

[00:19:52]:
As I mentioned earlier, after the 50 basis point cut was announced, market shot up on that news and just couldn’t hold on to those gains. So a bit of a buy the rumor, sell the news event, not hugely unexpected. And keep in mind, this is a seasonally weak time of the year. Now, we don’t see it as any major concern for us here. Again, there are only eight trading sessions left for the month of September. And then in those eight sessions, we could even get a little bit of front running because what does a new quarter mean? And a new month, it means more fund flows into the market. That’s from retirement accounts, from pension accounts. Right.

And again, another round of earnings as well. So we don’t see this as the beginning of any kind of larger move lower. And in our minds, if we do get a pullback of any kind, we’ll continue what we’ve done since the October 2022 lows, and that is buy the dip. The smart money move has remained unchanged, and it is to buy the dip here. So next up, let’s take a look at our internals on the day to day. Very similar to our market action heading into the meeting today. They were mixed to flat and then shot up after the meeting, ultimately finishing mixed. On the day to day, we had more declining stocks than advancing stocks for both the NYSE and the Nasdaq.

[00:21:22]:
No big beat or anything to be worried about. 52 week highs. Lows, though, continue to come in rock solid here. This was our bright spot on the day, coming with a combined 722 stocks hitting 52 week highs to just 82. Stocks hitting 52 week lows can be a little bit of a lagging indicator, as we discuss here often. But again, good to see on that kind of action today. And then finally here, volume on the day coming in slightly negative for both the NYSE and I and the Nasdaq. Again, no major concerns for us there, though.

Next up, looking at our sectors on the day to day, we finished with just two out of our eleven sectors higher on the day today. Those two were energy and communication services, our laggards on the day, I’ll point out, really not that big of losses. You know, across the board. This is essentially kind of a flat day here. So again, in this seasonally weak timeframe, no big concerns for us here. But our biggest losers were utilities, tech and consumer staples. Now, we still have a lot of these sectors remaining at or near all time highs, 52 week highs. A lot of them did hit those highs again today before pulling back into the close.

[00:22:40]:
So again, no big concerns for us on that front. Finally here for today, our VRA commodity watch here. Little bit of red on the screen as well, but no big red numbers. Gold down three tenths of 1% now to $2,584 an ounce. But it also hit an all time high during the session today to 26 27. And this is a group that we remain extremely bullish on here, especially in a rate cut environment. Both golden and the miners, we remain extremely bullish on, especially over the medium to long term. Next up, silver, down 1.8%, still above $30 an ounce at $30.41 an ounce, copper essentially flat on the day at $4.27 a pound, and oil back below dollar 70 a barrel.

Really has been hovering around this range for a little while now, down 1.16% to $69.15 a barrel. And finally, for today, bitcoin did head higher on the news, initially getting up to over 61,000, now essentially flat on the day at $60,287 a bitcoin, folks, that is all that we have time for here today. Please be sure to subscribe to receive our VRA podcast every day at the market close. You can sign up@vraletter.com click the podcast link at the top and we’d love to have you with us. Thanks again for tuning in. Until next time, we’ll see you back here tomorrow for the close.