The new normal or the old one？

It’s up to Powell and co. to decide — but you need to be prepared for either

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SEPTEMBER 13, 2024       Hey y’all, So I’m gonna talk about the Fed again.  Sorry, I know I’m a bit of a broken record this week. But I’m really concerned that the stock market is setting up for a huge disappointment next week. And headlines like this aren’t putting my mind at ease:    According to CME FedWatch, traders are now pricing in a 43% chance of a 50 basis points rate cut next week — up from 28% just yesterday. This strikes me as irrational. Chairman Powell, whatever his strengths and his weaknesses, has been anything but quick on the trigger. Many criticize him for waiting too long to raise rates. And while you could argue that such criticism will pressure him to lower them more quickly, I don’t necessarily agree… I think we’re looking at a Fed Chairman defined by caution. He’s concerned about his legacy, and he knows that “slow and steady” is probably the safest way to proceed. But there’s another thing most people are forgetting. Because we had at or near-zero interest rates for many years before the COVID-19 pandemic, most people believe that a return to those levels is “a return to normal.” Nothing. Nothing could be further from true. Put bluntly, a near-0% interest rate is as much of an outlier as the 10+% rates we saw in the 70s and 80s.    Upon closer inspection, the “average” interest rate since 1971 has been 5.42%, which is right in line with our current rate threshold. But even if you remove the sky-high interest rates from the equation, and just look at the last 30ish years (since 1990) the average rate is approximately 3.65%. Represented on the chart below (1970 average in black, 1990 average in violet), you can see we don’t have that far to go to return to “normal”...   So the question then becomes, is Powell trying to restore a pre-COVID reality? Or is he trying to return the whole economy to “neutral?” The decade of uninterrupted bull markets we always talk about in the 2010s was also just a very slow and drawn-out economic recovery from the 2008 crisis. And the fact that this recovery was brought to an end not by natural causes, but by a black swan pandemic, has warped our perception of what “normal” really is. Powell will have to decide if the way forward takes us back closer to zero or more in the 3-4% range. If I had to bet, I’d bet on the latter. But I think most investors are expecting the former. The resulting disappointment could create temporarily deflated hopes in the markets, and cause us to see some extended corrections. Those could start as soon as Wednesday next week. I’m not a bear by any means. I think the markets have lots of room for upward mobility left. But I do think a correction and a reorientation needs to happen. We need to let some air out of the balloon, and then refocus on what actually matters in the markets. We hyper-focus on the Fed as the sign of whether the economy and the stock market is healthy…   But we ignore the more obvious signs. ADBE stock is a good example — a double beat on earnings today, but lowered future guidance caused a massive stock loss of nearly 10%.   NVDA a few weeks ago was another great example of this. Investors can’t see the forest for the trees right now — they’re so forward-focused that they don’t see the dozens of thriving companies right in front of their eyes. So I think we need to correct that a little bit, and reorient towards the present. Then, it’s off to the races… But as long as investors hang their hopes on the Fed as the weathervane of the stock market, I think there’s going to be lots of disappointment and hiccups along the way. Hope there are no hiccups for your weekend plans! Enjoy the time… To your prosperity, Stephen Ground Editor-in-Chief, ProsperityPub P.S. The one good thing next week’s Fed meeting could bring to the market is volatility. And Nate Tucci has big plans to harness that volatility when it hits!

SEPTEMBER 13, 2024 Hey y’all,   So I’m gonna talk about the Fed again.    Sorry, I know I’m a bit of a broken record this week. But I’m really concerned that the stock market is setting up for a huge disappointment next week.   And headlines like this aren’t putting my mind at ease:    According to CME FedWatch, traders are now pricing in a 43% chance of a 50 basis points rate cut next week — up from 28% just yesterday.   This strikes me as irrational.   Chairman Powell, whatever his strengths and his weaknesses, has been anything but quick on the trigger. Many criticize him for waiting too long to raise rates. And while you could argue that such criticism will pressure him to lower them more quickly, I don’t necessarily agree…   I think we’re looking at a Fed Chairman defined by caution. He’s concerned about his legacy, and he knows that “slow and steady” is probably the safest way to proceed.   But there’s another thing most people are forgetting.   Because we had at or near-zero interest rates for many years before the COVID-19 pandemic, most people believe that a return to those levels is “a return to normal.”   Nothing. Nothing could be further from true.   Put bluntly, a near-0% interest rate is as much of an outlier as the 10+% rates we saw in the 70s and 80s.    Upon closer inspection, the “average” interest rate since 1971 has been 5.42%, which is right in line with our current rate threshold.   But even if you remove the sky-high interest rates from the equation, and just look at the last 30ish years (since 1990) the average rate is approximately 3.65%.   Represented on the chart below (1970 average in black, 1990 average in violet), you can see we don’t have that far to go to return to “normal”...   So the question then becomes, is Powell trying to restore a pre-COVID reality? Or is he trying to return the whole economy to “neutral?”   The decade of uninterrupted bull markets we always talk about in the 2010s was also just a very slow and drawn-out economic recovery from the 2008 crisis.   And the fact that this recovery was brought to an end not by natural causes, but by a black swan pandemic, has warped our perception of what “normal” really is.   Powell will have to decide if the way forward takes us back closer to zero or more in the 3-4% range. If I had to bet, I’d bet on the latter.   But I think most investors are expecting the former.   The resulting disappointment could create temporarily deflated hopes in the markets, and cause us to see some extended corrections.   Those could start as soon as Wednesday next week.   I’m not a bear by any means. I think the markets have lots of room for upward mobility left.   But I do think a correction and a reorientation needs to happen. We need to let some air out of the balloon, and then refocus on what actually matters in the markets.   We hyper-focus on the Fed as the sign of whether the economy and the stock market is healthy…   But we ignore the more obvious signs.   ADBE stock is a good example — a double beat on earnings today, but lowered future guidance caused a massive stock loss of nearly 10%.   NVDA a few weeks ago was another great example of this.   Investors can’t see the forest for the trees right now — they’re so forward-focused that they don’t see the dozens of thriving companies right in front of their eyes.   So I think we need to correct that a little bit, and reorient towards the present.   Then, it’s off to the races…   But as long as investors hang their hopes on the Fed as the weathervane of the stock market, I think there’s going to be lots of disappointment and hiccups along the way.   Hope there are no hiccups for your weekend plans! Enjoy the time…   To your prosperity,   Stephen Ground Editor-in-Chief, ProsperityPub   P.S. The one good thing next week’s Fed meeting could bring to the market is volatility. And Nate Tucci has big plans to harness that volatility when it hits!

ABOUT US:  We believe that the opportunity for financial literacy and freedom belongs to all people, not just those who already have years of investing experience. Prosperity Pub provides an array of educational services and products that will help you navigate the markets and become a better investor. Trading is made simple through our online forum full of trading techniques to give you the best tools to kick-start your investing journey. We offer collaborative webinars and training; we love to teach. No matter the opportunity, we bring together a strong community of like-minded traders to focus on analyzing market news as it’s presented each day. DISCLAIMER: FOR INFORMATION PURPOSES ONLY. The materials presented from Prosperity Pub are for your informational purposes only. Neither Prosperity Pub nor its employees offer investment, legal or tax advice of any kind, and the analysis displayed with various tools does not constitute investment, legal or tax advice and should not be interpreted as such. Using the data and analysis contained in the materials for reasons other than the informational purposes intended is at the user’s own risk. DISCLAIMER: TRADE AT YOUR OWN RISK; TRADING INVOLVES RISK OF LOSS; SEEK PROFESSIONAL ADVICE. Prosperity Pub is not responsible for any losses that may occur from transactions effected based upon information or analysis contained in the presented. To the extent that you make use of the concepts with the presentation material, you are solely responsible for the applicable trading or investment decision. Trading activity, including options transactions, can involve the risk of loss, so use caution when entering any option transaction. You trade at your own risk, and it is recommended you consult with a financial advisor for investment, legal or tax advice relating to options transactions.  Please visit https://prosperitypub.com/terms-conditions/ for our full Terms and Conditions. Unsubscribe This email was sent to edwardlorilla1986.paxforex@blogger.com by Prosperity Pub 101 Marketside Ave, Suite 404 PMB 318, Ponte Vedra, Florida 32081, United States Prosperity Pub

ABOUT US:  We believe that the opportunity for financial literacy and freedom belongs to all people, not just those who already have years of investing experience. Prosperity Pub provides an array of educational services and products that will help you navigate the markets and become a better investor. Trading is made simple through our online forum full of trading techniques to give you the best tools to kick-start your investing journey. We offer collaborative webinars and training; we love to teach. No matter the opportunity, we bring together a strong community of like-minded traders to focus on analyzing market news as it’s presented each day. DISCLAIMER: FOR INFORMATION PURPOSES ONLY. The materials presented from Prosperity Pub are for your informational purposes only. Neither Prosperity Pub nor its employees offer investment, legal or tax advice of any kind, and the analysis displayed with various tools does not constitute investment, legal or tax advice and should not be interpreted as such. Using the data and analysis contained in the materials for reasons other than the informational purposes intended is at the user’s own risk. DISCLAIMER: TRADE AT YOUR OWN RISK; TRADING INVOLVES RISK OF LOSS; SEEK PROFESSIONAL ADVICE. Prosperity Pub is not responsible for any losses that may occur from transactions effected based upon information or analysis contained in the presented. To the extent that you make use of the concepts with the presentation material, you are solely responsible for the applicable trading or investment decision. Trading activity, including options transactions, can involve the risk of loss, so use caution when entering any option transaction. You trade at your own risk, and it is recommended you consult with a financial advisor for investment, legal or tax advice relating to options transactions.  Please visit https://prosperitypub.com/terms-conditions/ for our full Terms and Conditions.   Unsubscribe This email was sent to edwardlorilla1986.paxforex@blogger.com by Prosperity Pub 101 Marketside Ave, Suite 404 PMB 318, Ponte Vedra, Florida 32081, United States Prosperity Pub