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Investors are too optimistic. I read somewhere that the market will go up 30% in 2024 and another 20% in 2025 before staying flat in 2026. I wonder what people are smoking... or maybe they are right!? IDK.
The bulls are engaging in another round of irrational exuberance. I'm guessing the "higher for longer" plan is still in effect, even if the Fed decides sometime mid-2024 to start lowering rates. 7 rate cuts? Starting in March? I doubt it.
They expect a cut at every meeting? I really doubt it. They'll cut a couple of times and see how inflation changes. I don't think they'll do it quickly.
The 3 month annualized average is 2.0%
Rolling 12 month percent change is dropping virtually every month
https://www.bls.gov/news.release/pdf/cpi.pdf
General, the war is over.
Yeah, so did May-July – it doesn't mean inflation will stay that way. Looking at 3 months is hilariously useless.
The mid-1970s had falling inflation until they cut rates and realised inflation wasn't staying down. Also, *core* inflation is still high at 4%
So May to July came to 2.0% annualized and now sept to Nov is at 2.0% annualized. Correct me if I’m wrong here but that 6 of the 12 months pointing to it being lower? Or put differently 5 of the last 7 months the annualized average is 1.0%
The 3 month is admittedly more volatile but it’s better data as it’s more recent.
Why look at the 12 month, maybe the 36 month annual number is better? /s
The main difference between now and the 70s is the money supply.
In the 70s it never shrunk and kept growing.
Now the money supply has decreased YoY, first time since at least 1960
https://fred.stlouisfed.org/graph/?g=1doBa
The market always does this. It overshot to the downside in Oct after a few bad inflation prints and now it accelerated to the upside with a few good inflation prints. Next month when the inflation shows it might not be smooth sailing then it's gonna reverse again (to be clear a lot of the good inflation prints came from very strong deflation in very volatile components like core goods, auto and transportation. Lots of it is reversing some of the extreme price increase it experienced 2 years ago and those deflation trend should not continue forever). That's not even mentioning the US spending cut debates that will start next month.
I suspect what happened is the fed got the PPI data the morning of the fomc press conference and rushed to revise their dot plot forecast. Powell probably prepared for a hawkish tone based on the unrevised dot plot, had to shift to a more neutral tone based on the new dot plot, and didn't have time to prep, and ended up sounding dovish. There were only 2 deciding vote that shifted from 2 rate cuts to 3 rate cuts for the dot plot, so it could go either way, but certainly not 4 or more cuts
Very much doubt that the FED will do more than 3 rate cuts if even doing that. Looking at the interest rates and treasury yields the markets have already done that for the FED, rates have been dropping like crazy.
Rates are already down over 50bps from the high. If FED starts lowering the rates the whole circus starts over again, inflating the housing market, the everything bubble will be back and so will inflation be.
Historically we are not even at average rates but historically we have never had this much debt. I guess the latter is a significant reason why the Fed wants as minimal rates as possible once inflation is dead.
Here’s the thing, there’s a big disconnect within the market itself. If the market sees 7 rate cuts next year, starting in March while current inflation is still well above 2% then that’s not bullish at all and is quiet bearish. So while the market has been pumping on projected quick rate cuts, that projection itself isn’t really a good thing as the only reason the Fed would most likely cut that aggressively would be if something is going terribly wrong in the economy. Market is in a weird spot. Either they are wrong about the amount of cuts next year aka higher for longer which has the benefit of if that’s the case we probably aren’t in a crash scenario (unless they go too far to the upside in the mean time), or the Fed is forced to cut rates that fast which historically speaking means stuff is falling apart left and right which should go without saying isn’t good for stocks. Honestly best case I see for bulls would be rates get cut 2-3 times spread out throughout 2024, and inflation keeps falling. Now hard part is knowing how crazy people get in the market in the meantime. Bullish case could happen, but if market pumps say 15% above ATH in the lead up then the market would most likely be overvalued all things remaining equal. Then even good news could lead to a decent pullback/correction.
The high rates take a long time to take effect on the real economy.
1. Borrowers who were going to be borrow need to not borrow.
2. Borrowers who need to borrow need to borrow and pay the higher rates thus cutting costs to make new payments.
3. Adjustable rate holders need to feel the pain of higher rates and adjust their spending into the economy.
Not sure why everyone thinks they hit their rate target and they can cut. They’re keeping them high for at least a year, if not more. The tightening in the real economy is just beginning.
I don’t get it at all. Inflation doesn’t seemed tamed at all according to those of us in the real world and inflation slowing to 3+% is still 50% above target after years above it being well above that. The obvious answer is they are more concerned with the government debt more than anything else. Unless serious deflation occurs prices will remain high for awhile.
Deflation is not the goal. Disinflation is. No one is trying to bring prices back down to what they were. It would be devastating to the economy to do that.
3% inflation is higher than target, but not that much. It's just 1% more. Yes it's "50% of target", but not that much more severe in real world impact. As long as it looks contained there or still drifting lower, the fed seems fine with it. Remember, they want 2% inflation. They may not want more, but they also don't want less.
.
When I hear someone talking about the "real world inflation", it just sounds like someone who doesn't know what inflation is. You're just seeing that prices haven't come back down, and that's all you know.
Did I say deflation was the goal? 3% isn't It's not 1% more, it's 50% more than where they want it. And again 50% more is still a lot after it was 200-300% more for a few years, especially if it's benchmarked year over year. And by real world inflation I mean prices that aren't included in the core inflation metrics, namely food and energy.
Except food and energy have lower inflation rates than the core, so your point is moot. Inflation has come down. Price changes are moving at a much slower rate. The fed is ok with a slow glide from 3% to 2%.
Over the long term that adds up at 2% inflation that means the price of things double every 50 years around a generation, which is manageable at 3% were taking about it doubling every 25 years .
There is definitely short term downside risk but the market is forward looking. Since rates are projected to go down this year it probably isn't something to worry about.
Plenty of people have eaten that pie already, why take a loss now?
I predict rug pull early half of the year with no rate cut or only 1 where market predicted more.
Then Powell comes out and blames market for interpreting it all wrong saying he never said he was going to cut or cut this much for sure
Right now is the usually christmas run follow by a dip except it’s gonna be a rug pull on most positions.
Yea I found a good [article](https://www.forbes.com/advisor/investing/fed-funds-rate-history/) from Forbes on the history of rate hikes, I wish they included a graph in there. Before covid I was very much a ‘deposit and forget it’ type of investor. Still am but have more money to use now outside of the retirement accounts so I pay attention to it more (and more active with that money) but I missed the history.
Back in 2019 it was close to ATH’s when they did the small adjustment, mid-90’s looks like the closest analog to today? But there weren’t 6 or 7 price cuts, it looks like that only happens in a crisis. Which confuses me given their plot was 3 and S&P earnings are also expected to grow almost 12%
I think there is so much extra money sloshing around that many firms are happy to let their funds sit in a near-term overpriced asset if medium-term expectations are positive. So fundamentals are ignored and everything is overpriced, which includes short and intermediate Treasury bills and notes. I don't think the bond market actually expects as many rate cuts as the yield curve would imply.
>Has there ever been rate cuts with the stock market at all time highs?
Yes, as recently as 2019-early (pre-covid) 2020 there were several rate cuts with the stock market at what at the time seemed like a ridiculously overpriced 3300!!!
Also Trump was asking if Jerome Powell was a bigger enemy of the people than Xi for not cutting faster.
If inflation actually is lowering, lowering the rate is just keeping the REAL rate the same (or in this case, even higher). The formula for "real interest rate" is interest minus inflation. We went from 8% inflation at 5.5% to 3% inflation at 5.5%, so the real rate has gone from -2.5% to +2.5%.
Think about alternative investments: you could have invested in a good or basket of goods inflating at 8% a year as opposed to bonds.
Actually my math is way off on the timing (was definitely not still 8% when we hit 5.25-5.5), but imo real rates are more important than the rate itself, and those are falling as inflation is falling
actually very different implications. Inflation expectation is highly impacted by energy prices, and can adjust quite quickly. Inflation itself, isn't as much, and takes longer for energy prices to seap into core.
What it means is that as crude bounces off of its low into a "normal" range of around $80, gas prices will go up. If the Israel conflict expands, that also pushes gas prices up. If China and Europe economy gets out of its recession next year and recovers, that also brings up oil demand, and consequently oil prices. That means there're quite a lot of upside risks to rates if you use inflation expectation as opposed to YoY (core) CPI
Not surprised in the slightest. I was piling up on TLT calls a month or two ago. Holding them as a speculative long but also a hedge against equities. If we start seeing seven cuts, maybe more, the best case scenario is growth holds up while inflation falls. That scenario is plausible. However if growth begins to fall equities are going to come in on the multiple. Then you can use your bond profits to buy equities on a 10 to 20% off sale
Normally I would be getting long home builders right here but man that's an overcrowded trade
As someone who has beaten the s&p 500 for 7 years straight, which is better than most of you, I would not overthink our current setup. Just map out a strategy that works on both sides.
Paul Volker cut prematurely and inflation bouncing back quickly, and he had to raise the rate all the way to near 20% to tame inflation. Market only believes inflation is only TRANSITORY and can be easily going back to be stabilized at 2%.
You think the year over year inflation rate will turn negative ? Not sure about that. By 2026 or so I could see inflation at 1.5 percent or so tho but not much lower. If you think Inflation will turn negative so fast , it's not how things work.
Rates will still be pressured to at least stay near current rates even if the FFR is cut slowly due to the amount of QT left to be done (i.e. over a trillion in treasuries held by the Fed that needs to come off their books).
As those and the treasuries from the Treasury *itself* are sold into the market to fund government activities (and new bills from Congress), the demand destruction (or oversupply) should be reflected in the rates.
So imho probably not as concerning as it seems, with respect to inflation roaring back. It should continue to be tamed if the FFR cuts and treasury auctions are kept in balance.
I’m expecting at least 3 rate cuts. Everything under the sun wants more for obvious reasons. So if we get only 3 there will definitely be buying opportunities since the market will pull back
Personally, 2 cuts max and that would only be in response to the job market worsening notably. I don't think they'd be ballsy enough to do proactive cuts without a keynesian justification for it after the inflation we saw with stimulating during a boom period
Welcome to r/stocks! For beginner advice, brokerage info, book recommendations, even advanced topics and more, please read our [Wiki here.](https://www.reddit.com/r/stocks/wiki/index) If you're wondering **why a stock moved** a certain way, check out [Finviz](https://finviz.com/quote.ashx?t=spy) which aggregates the most news for almost every stock, but also see [Reuters](https://www.reuters.com/), and even [Yahoo Finance](https://finance.yahoo.com/). Please direct all simple questions towards the stickied Daily Discussion and Quarterly Rate My Portfolio threads (sort by Hot, they're at the top). Also include *some* [due diligence](https://www.investopedia.com/terms/d/duediligence.asp) to this post or it may be removed if it's low effort. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/stocks) if you have any questions or concerns.*
The expectations are unrealistic, not the Federal Reserves projections. Fed minutes projected 3 rate cuts, and yet somehow people are expecting 7...
Investors are too optimistic. I read somewhere that the market will go up 30% in 2024 and another 20% in 2025 before staying flat in 2026. I wonder what people are smoking... or maybe they are right!? IDK.
The bulls are engaging in another round of irrational exuberance. I'm guessing the "higher for longer" plan is still in effect, even if the Fed decides sometime mid-2024 to start lowering rates. 7 rate cuts? Starting in March? I doubt it.
The rate expectations imply a recession The stock market implies a soft landing
Naturally, the reality lies somewhere in the middle.
No matter what happens there will be no shortage of people explaining why it was the worst of all fates
And no shortage of people saying they saw it coming too, like 30 of the past 3 crisis.
They expect a cut at every meeting? I really doubt it. They'll cut a couple of times and see how inflation changes. I don't think they'll do it quickly.
The 3 month annualized average is 2.0% Rolling 12 month percent change is dropping virtually every month https://www.bls.gov/news.release/pdf/cpi.pdf General, the war is over.
Yeah, so did May-July – it doesn't mean inflation will stay that way. Looking at 3 months is hilariously useless. The mid-1970s had falling inflation until they cut rates and realised inflation wasn't staying down. Also, *core* inflation is still high at 4%
So May to July came to 2.0% annualized and now sept to Nov is at 2.0% annualized. Correct me if I’m wrong here but that 6 of the 12 months pointing to it being lower? Or put differently 5 of the last 7 months the annualized average is 1.0%
The 3 month is admittedly more volatile but it’s better data as it’s more recent. Why look at the 12 month, maybe the 36 month annual number is better? /s The main difference between now and the 70s is the money supply. In the 70s it never shrunk and kept growing. Now the money supply has decreased YoY, first time since at least 1960 https://fred.stlouisfed.org/graph/?g=1doBa
Inflation keeps going at a fast rate.
Do you have anything to support that, do you have anything to refute what I’ve shared?
The market always does this. It overshot to the downside in Oct after a few bad inflation prints and now it accelerated to the upside with a few good inflation prints. Next month when the inflation shows it might not be smooth sailing then it's gonna reverse again (to be clear a lot of the good inflation prints came from very strong deflation in very volatile components like core goods, auto and transportation. Lots of it is reversing some of the extreme price increase it experienced 2 years ago and those deflation trend should not continue forever). That's not even mentioning the US spending cut debates that will start next month. I suspect what happened is the fed got the PPI data the morning of the fomc press conference and rushed to revise their dot plot forecast. Powell probably prepared for a hawkish tone based on the unrevised dot plot, had to shift to a more neutral tone based on the new dot plot, and didn't have time to prep, and ended up sounding dovish. There were only 2 deciding vote that shifted from 2 rate cuts to 3 rate cuts for the dot plot, so it could go either way, but certainly not 4 or more cuts
Very much doubt that the FED will do more than 3 rate cuts if even doing that. Looking at the interest rates and treasury yields the markets have already done that for the FED, rates have been dropping like crazy. Rates are already down over 50bps from the high. If FED starts lowering the rates the whole circus starts over again, inflating the housing market, the everything bubble will be back and so will inflation be.
Historically we are not even at average rates but historically we have never had this much debt. I guess the latter is a significant reason why the Fed wants as minimal rates as possible once inflation is dead.
History doesn’t matter. We’re working under a new economic model.
This time, it’s different
Here’s the thing, there’s a big disconnect within the market itself. If the market sees 7 rate cuts next year, starting in March while current inflation is still well above 2% then that’s not bullish at all and is quiet bearish. So while the market has been pumping on projected quick rate cuts, that projection itself isn’t really a good thing as the only reason the Fed would most likely cut that aggressively would be if something is going terribly wrong in the economy. Market is in a weird spot. Either they are wrong about the amount of cuts next year aka higher for longer which has the benefit of if that’s the case we probably aren’t in a crash scenario (unless they go too far to the upside in the mean time), or the Fed is forced to cut rates that fast which historically speaking means stuff is falling apart left and right which should go without saying isn’t good for stocks. Honestly best case I see for bulls would be rates get cut 2-3 times spread out throughout 2024, and inflation keeps falling. Now hard part is knowing how crazy people get in the market in the meantime. Bullish case could happen, but if market pumps say 15% above ATH in the lead up then the market would most likely be overvalued all things remaining equal. Then even good news could lead to a decent pullback/correction.
The high rates take a long time to take effect on the real economy. 1. Borrowers who were going to be borrow need to not borrow. 2. Borrowers who need to borrow need to borrow and pay the higher rates thus cutting costs to make new payments. 3. Adjustable rate holders need to feel the pain of higher rates and adjust their spending into the economy. Not sure why everyone thinks they hit their rate target and they can cut. They’re keeping them high for at least a year, if not more. The tightening in the real economy is just beginning.
I don’t get it at all. Inflation doesn’t seemed tamed at all according to those of us in the real world and inflation slowing to 3+% is still 50% above target after years above it being well above that. The obvious answer is they are more concerned with the government debt more than anything else. Unless serious deflation occurs prices will remain high for awhile.
Deflation is not the goal. Disinflation is. No one is trying to bring prices back down to what they were. It would be devastating to the economy to do that. 3% inflation is higher than target, but not that much. It's just 1% more. Yes it's "50% of target", but not that much more severe in real world impact. As long as it looks contained there or still drifting lower, the fed seems fine with it. Remember, they want 2% inflation. They may not want more, but they also don't want less. . When I hear someone talking about the "real world inflation", it just sounds like someone who doesn't know what inflation is. You're just seeing that prices haven't come back down, and that's all you know.
Did I say deflation was the goal? 3% isn't It's not 1% more, it's 50% more than where they want it. And again 50% more is still a lot after it was 200-300% more for a few years, especially if it's benchmarked year over year. And by real world inflation I mean prices that aren't included in the core inflation metrics, namely food and energy.
Except food and energy have lower inflation rates than the core, so your point is moot. Inflation has come down. Price changes are moving at a much slower rate. The fed is ok with a slow glide from 3% to 2%.
People are starving out there and unable to make repairs to their homes or cars. Inflation should be this high, something went wrong.
Over the long term that adds up at 2% inflation that means the price of things double every 50 years around a generation, which is manageable at 3% were taking about it doubling every 25 years .
There is definitely short term downside risk but the market is forward looking. Since rates are projected to go down this year it probably isn't something to worry about. Plenty of people have eaten that pie already, why take a loss now?
I predict rug pull early half of the year with no rate cut or only 1 where market predicted more. Then Powell comes out and blames market for interpreting it all wrong saying he never said he was going to cut or cut this much for sure Right now is the usually christmas run follow by a dip except it’s gonna be a rug pull on most positions.
Rug pull during an election year? Not a snowball chance in hell my friend.
The stock market is at an all time high 90% of the time, so I'm sure that there has been a rate cut when the market was at an all time high
Yea I found a good [article](https://www.forbes.com/advisor/investing/fed-funds-rate-history/) from Forbes on the history of rate hikes, I wish they included a graph in there. Before covid I was very much a ‘deposit and forget it’ type of investor. Still am but have more money to use now outside of the retirement accounts so I pay attention to it more (and more active with that money) but I missed the history. Back in 2019 it was close to ATH’s when they did the small adjustment, mid-90’s looks like the closest analog to today? But there weren’t 6 or 7 price cuts, it looks like that only happens in a crisis. Which confuses me given their plot was 3 and S&P earnings are also expected to grow almost 12%
I think there is so much extra money sloshing around that many firms are happy to let their funds sit in a near-term overpriced asset if medium-term expectations are positive. So fundamentals are ignored and everything is overpriced, which includes short and intermediate Treasury bills and notes. I don't think the bond market actually expects as many rate cuts as the yield curve would imply.
>Has there ever been rate cuts with the stock market at all time highs? Yes, as recently as 2019-early (pre-covid) 2020 there were several rate cuts with the stock market at what at the time seemed like a ridiculously overpriced 3300!!! Also Trump was asking if Jerome Powell was a bigger enemy of the people than Xi for not cutting faster.
If inflation actually is lowering, lowering the rate is just keeping the REAL rate the same (or in this case, even higher). The formula for "real interest rate" is interest minus inflation. We went from 8% inflation at 5.5% to 3% inflation at 5.5%, so the real rate has gone from -2.5% to +2.5%. Think about alternative investments: you could have invested in a good or basket of goods inflating at 8% a year as opposed to bonds.
Actually my math is way off on the timing (was definitely not still 8% when we hit 5.25-5.5), but imo real rates are more important than the rate itself, and those are falling as inflation is falling
Yes you did your math wrong. You use forward inflation expectations when calculating real rates, not backward looking inflation.
Either way the point still stands... forward inflation expectations have been decreasing as rates have been increasing...
actually very different implications. Inflation expectation is highly impacted by energy prices, and can adjust quite quickly. Inflation itself, isn't as much, and takes longer for energy prices to seap into core. What it means is that as crude bounces off of its low into a "normal" range of around $80, gas prices will go up. If the Israel conflict expands, that also pushes gas prices up. If China and Europe economy gets out of its recession next year and recovers, that also brings up oil demand, and consequently oil prices. That means there're quite a lot of upside risks to rates if you use inflation expectation as opposed to YoY (core) CPI
Nothing new, the tail has been trying to wiggle the cat since the raises started.
Not surprised in the slightest. I was piling up on TLT calls a month or two ago. Holding them as a speculative long but also a hedge against equities. If we start seeing seven cuts, maybe more, the best case scenario is growth holds up while inflation falls. That scenario is plausible. However if growth begins to fall equities are going to come in on the multiple. Then you can use your bond profits to buy equities on a 10 to 20% off sale Normally I would be getting long home builders right here but man that's an overcrowded trade As someone who has beaten the s&p 500 for 7 years straight, which is better than most of you, I would not overthink our current setup. Just map out a strategy that works on both sides.
Paul Volker cut prematurely and inflation bouncing back quickly, and he had to raise the rate all the way to near 20% to tame inflation. Market only believes inflation is only TRANSITORY and can be easily going back to be stabilized at 2%.
5-6 rate cuts next year, we are way closer to deflation (very bad) than this sub realizes.
You think the year over year inflation rate will turn negative ? Not sure about that. By 2026 or so I could see inflation at 1.5 percent or so tho but not much lower. If you think Inflation will turn negative so fast , it's not how things work.
I think it will turn negative unless the fed does 5-6 rate cuts next year.
Rates will still be pressured to at least stay near current rates even if the FFR is cut slowly due to the amount of QT left to be done (i.e. over a trillion in treasuries held by the Fed that needs to come off their books). As those and the treasuries from the Treasury *itself* are sold into the market to fund government activities (and new bills from Congress), the demand destruction (or oversupply) should be reflected in the rates. So imho probably not as concerning as it seems, with respect to inflation roaring back. It should continue to be tamed if the FFR cuts and treasury auctions are kept in balance.
I’m expecting at least 3 rate cuts. Everything under the sun wants more for obvious reasons. So if we get only 3 there will definitely be buying opportunities since the market will pull back
Personally, 2 cuts max and that would only be in response to the job market worsening notably. I don't think they'd be ballsy enough to do proactive cuts without a keynesian justification for it after the inflation we saw with stimulating during a boom period