A rate cut may ring the bell, just not the one you want to hear
U.S. indexes tumble; S&P 500 off >1.7%, Nasdaq down >2.8%
Utilities leads S&P 500 sector gainers; Tech biggest loser
Dollar dips; gold gains, bitcoin and crude up >1%
U.S. 10-Year Treasury yield edgest up to ~4.25%
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A RATE CUT MAY RING THE BELL, JUST NOT THE ONE YOU WANT TO HEAR
Doug Ramsey, chief investment officer and portfolio manager at The Leuthold Group, is concerned that the lagged impact of monetary tightening has yet to punch the economy with its full force.
Ramsey is noting that the time lag in this cycle has been so protracted that he says it’s "spawned some provocative countervailing narratives."
Citing his research from June, Ramsey noted that net deficit spending during the last 18 months was substantially stronger than any other period of Fed tightening.
"Meanwhile, clever Janet Yellen inevitably seems to find a way to finance the spending in a manner that best accommodates financial markets," writes Ramsey in a note as part of The Leuthold Group's July 2024 Green Book.
He adds that "Somehow, though, we find this newfound confidence in fiscal supremacy disingenuous. If deficit spending were the answer to all of the economy’s ills, then why the 24/7 obsession about the prospects for a September rate cut?"
In any event, as Ramsey sees it, a September rate cut, which could be the first of many, now looks likely. But he also thinks that the aftermath of any cut might not be exactly what traders are conditioned to expect.
Subsequent to the tightening cycles of 1999-2000 and 2006-2007, he notes that the initial rate cuts provided timely excuses to "dump stocks — as did most of the cuts that followed."
Here are rough recreations of Ramsey's charts showing S&P 500 index .SPX trading action subsequent to the initial rate cuts during those period:
Ramsey cautions that "After a hiking cycle as aggressive as the latest one, it could happen again."
(Terence Gabriel)
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FOR WEDNESDAY'S EARLIER LIVE MARKETS POSTS:
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A FEW REASONS TO BE WARY OF THE SMALL-CAP RALLY - CLICK HERE
SPOT ETHER ETF LAUNCH A 'MARGINAL SUCCESS' - CLICK HERE
A LONG TIME 'TIL SEPTEMBER: NEW HOME SALES, FLASH PMI, ETC. - CLICK HERE
WALL STREET TURNS RED WITH ALPHABET, TESLA RESULTS WEIGHING - CLICK HERE
NASDAQ COMPOSITE: 50-DAY MOVING AVERAGE MAY BE A MAGNET - CLICK HERE
EURO ZONE RECOVERY HITS THE SKIDS - CLICK HERE
STOXX FACES A STEEPENING WALL OF DEBT MATURITIES - CLICK HERE
EUROPEAN STOCKS DROP, LUXURY LAGS - CLICK HERE
EUROPEAN FUTURES SLIP ON HEAVY EARNINGS DAY - CLICK HERE
LACKLUSTRE EARNINGS KEEP INVESTORS JITTERY - CLICK HERE
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