A Nasty Potential Side Effect of Fed Rate Cuts

Remember, the market is not the economy… [Turn Your Images On] [A Nasty Potential Side Effect of Future Rate Cuts]( [Turn Your Images On] [Matt Clark]( Chief Research Analyst It was as if sunlight finally peered through a cloudy day. Last week, Federal Reserve Chair Jerome Powell gave investors the news they’ve been waiting all year for… Interest rate cuts are on the horizon. Wall Street went berserk. Both the Nasdaq and the S&P 500 rose 1.4% in short order and the Dow Jones Industrial Average closed above 37,000 points for the first time ever. It seemed like we were finally out of the doldrums of endless high inflation and “higher for longer” fed fund rates. But as famous ESPN college football analyst Lee Corso would say after a fellow analyst made a bad pick… “Not so fast, my friend.” Today, I’m going to show you why we may not be out of the woods just yet. And certain data suggests rate cuts aren’t the fix-all we’re looking for. --------------------------------------------------------------- [Turn Your Images On]( [Forget About the 99% of Stocks That Barely Move Each Month … and Pinpoint the Top 1% Set to Bring in the Biggest Gains]( Trading legend Mike Carr has developed a new breakthrough trading system that pinpoints which Nasdaq stock is set to gain the most over the next 30 days. Resulting in gains as high as 118%, 161%, 213% … even 406% — all in less than 30 days. [Go here to get Mike’s new system working for you now]( — before it closes to new members. --------------------------------------------------------------- We’re Forgetting About a Recession Now, I’m not a doom-and-gloom kind of guy. I try to be more in the “glass half full” group. While all of the talk in 2023 has been about inflation and interest rates, we are forgetting that a recession is not out of the question. By definition, a recession is a prolonged and widespread downturn in economic conditions. Negative gross domestic product, rising unemployment, falling retail sales and cutbacks in consumer and business activities are all characteristics of a recession. We saw it following the dot-com crisis of the early 2000s, the financial crisis in 2008 and to some extent after the COVID pandemic in 2020. Higher interest rates and the cost of goods due to inflation force us to be stricter with our budget, only buying goods we need or looking for discounts on more frivolous items. It also keeps hiring tight, as bringing on new employees is a costly endeavor. We relish rate cuts because we have jobs and some money in the bank. But if you have lost your job or slowed down your spending, it paints an entirely different picture. After some digging, I found research that suggests 2024 may be less Mona Lisa and more Picasso. Fed Data Suggests Recession Fears Are Still Legit The potential for three rate cuts in 2024 is good news for investors. But the stock market is not the economy. Unemployment rose to 3.7% in November — up from 3.6% the same time a year ago. Interest rates are still high … which impacts the ability to borrow. Student loan payments are also back … another pain point for the American consumer. But we need only look at the Fed’s own data to tell us that the risk of a recession is high. And it has a lot to do with the prognosis of future rate cuts: [Turn Your Images On] [(Click here to view larger image.)]( This chart shows the slope of the yield curve between the 10-year Treasury and the three-month Treasury — aka the difference between the rates of each. It also shows the probability of a recession ahead of those readings. Since 1960, every recession has started with a rise in the curve followed by a sharp drop. As you can see, the spread in the top chart has started to drop and further rate cuts from the Fed will push that spread lower. Let’s look at it a different way: [Turn Your Images On] [(Click here to view larger image.)]( This chart shows the fed funds rate as a blue line and the S&P 500 as a black line. The red on the chart indicates a recession. Since 1998, every time the Fed cut rates, a recession followed. We can assume that if the Fed decides to cut rates in 2024, a recession in the U.S. is likely shortly after that. It all means that while the market can revel in the potential for rate cuts, it is those very cuts that could create an economic downturn in the next year. To avoid this, the Fed could be dovish (aka more accommodative) in its language but remain somewhat hawkish (aka tight) in its actions. As we saw last week, the market loves when Powell says what it wants to hear, not necessarily if he follows through… --------------------------------------------------------------- [Turn Your Images On]( From our Partners at Banyan Hill Publishing. [The #1 Threat to the U.S. Economy Right Now]( It’s not a recession, inflation or stock market crash — according to one expert: “Those are the least of our worries.” There’s a looming event that he believes will be far worse. This event will ignite a crisis more dangerous than anything America has seen since the Great Depression. Yet no one is talking about it. In [this shocking new exposé]( you will discover everything you need to know to sidestep the calamity. And perhaps even profit from it. To watch it, free of charge, [click here now.]( --------------------------------------------------------------- Stay Tuned: What’s Next for Housing As interest rates rose, the housing market became tighter and tighter in 2023. Now, future rate cuts should provide some relief. And that’s a good sign for certain housing stocks. Chad Stone, our managing editor, will explore what’s on the horizon for housing and how certain related stocks look within our proprietary Green Zone Power Ratings system. Until then… Safe trading, [Matt Clark]( Chief Research Analyst, Money & Markets --------------------------------------------------------------- Check Out More From Stock Power Daily: - [WHAT TO WATCH AS FED KEEPS UP INFLATION FIGHT]( - [THANKS, COSTCO! THIS GOLD RALLY IS DIFFERENT]( - [FED’S RATE DECISION LOOKS GOOD FOR THESE STOCKS]( --------------------------------------------------------------- [Turn Your Images On]( Privacy Policy The Money & Markets, P.O. Box 8378, Delray Beach, FL 33482. To ensure that you receive future issues of Money & Markets, please add info@mb.moneyandmarkets.com to your address book or [whitelist]( within your spam settings. For customer service questions or issues, please contact us for assistance. The mailbox associated with this email address is not monitored, so please do not reply. Your feedback is very important to us so if you would like to contact us with a question or comment, please click here: [( Legal Notice: This work is based on what we've learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It's your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments carry large potential rewards but also large potential risk. Don't trade in these markets with money you can't afford to lose. Money & Markets permits editors of a publication to recommend a security to subscribers that they own themselves. However, in no circumstance may an editor sell a security before our subscribers have a fair opportunity to exit. Any exit after a buy recommendation is made and prior to issuing a sell notification is forbidden. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. (c) 2023 Money & Markets, LLC. All Rights Reserved. Protected by copyright laws of the United States and treaties. This Newsletter may only be used pursuant to the subscription agreement. Any reproduction, copying, or redistribution, (electronic or otherwise) in whole or in part, is strictly prohibited without the express written permission of Money & Markets. P.O. Box 8378, Delray Beach, FL 33482. (TEL: 800-684-8471) Remove your email from this list: [Click here to Unsubscribe](