Another Jumbo-Sized Cut?

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JOIN OUR FREE LIVE TRADING SESSION!]( Hello investor, Fed Officials Hinted Another Jumbo-Sized Cut If Economy Weakens Further Yesterday, a string of Federal Reserve officials offered their insights on the future interest rate plan. The consensus was clear. Interest rates need to come down. Chicago Fed President Austan Goolsbee said we are a “long way” away from the neutral rate. Notably, he believed the current economic condition was ideal and the Fed should try to maintain the level. - “Over the next 12 months, we have a long way to come down to get the interest rate to something like neutral to try to hold the conditions where they are,” Chicago Fed President Austan Goolsbee said. - “Basically, we would love to freeze both sides of the Fed’s dual mandate right here,” Goolsbee said. Chicago Fed President Austan Goolsbee (Photo: REUTERS/Brendan McDermid) However, Goolsbee and other Fed officials weren’t ready to support another 50 basis-point cut in the next meeting. What would help them decide? Incoming data, of course. The central bank is scheduled to meet on November 6-7 after the presidential election. Goolsbee warned that the current economic condition wouldn’t hold if the Fed doesn’t lower rates “significantly” over the next few months. - “If you’re restrictive for too long, you’re not going to be at that sweet spot on the dual mandate for much longer,” he said. Atlanta Fed President Raphael Bostic said it was still early to support another jumbo-sized cut. What could change his mind? “Any further evidence of material weakening in the labor market over the next month or so will definitely change my view on how aggressive policy adjustment needs to be,” said Bostic. So, it raises the stakes for the next monthly jobs report. It can be the game-changer that determines the size of the next rate cut. Atlanta Fed President Raphael Bostic (Photo: David Paul Morris/Bloomberg) Speaking of the neutral rate, Fed officials don’t know where it might be. Minneapolis’ Neel Kashkari believes the neutral rate would be higher if the economy continues to grow robustly like it did in the past few months. - “The longer this economic resilience continues, the more signal I take that the temporary elevation of the neutral rate might in fact be more structural,” Kashkari wrote. Governor Christopher Waller revealed that the jumbo-sized rate cut was due to several unexpectedly favorable inflation data in recent weeks. A rapidly cooling inflation can indicate that the demand is slowing. Indeed, Waller would support “going at a faster pace” if inflation continues to soften more than expected. A worsening labor market might force another 50 basis-point cut. Otherwise, a hotter-than-expected inflation could pause the rate-cutting cycle. - “If labor market data worsens, or if the inflation data continues to come in softer than everybody was expecting, then you can see going at a faster pace,” Waller said. Governor Christopher Waller (Photo: Brookings) Governor Michelle Bowman, however, believed that inflation remained sticky. She was the only official who voted against the rate cut decision. All in all, there are still lots of questions to be answered. Incoming data will help Fed officials determine the best path forward. Yesterday’s data showed a 15-month low reading for PMI manufacturing activity in the U.S. for August. So, expect economic data to dominate the conversation on Wall Street until the next earnings season. Top Disruptive Tech Company to Own Right Now Today’s Stock Pick: Oscar Health (OSCR) Oscar is a new player in the decades-old insurance industry. Its innovative technology approach makes it a dangerous competitor that has been disrupting the way the industry operates. As you may have heard, data is the new competitive advantage. (Source: Oscar Health) Oscar uses cutting-edge algorithms to price risks better. 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Basically, +Oscar is a SaaS product for insurance companies. Its customers include the Cleveland Clinic and Cigna. (Source: Oscar Health) Sure enough, its NPS is at around 66 which is way higher than the industry average of just 3. In its most recent investor presentation, it had about 1.5 million members. (Source: Oscar Health) The company expects to post a ~20% revenue CAGR from 2024 to 2027. Its TTM EPS is at $0.02. The company expects the EPS to $2.25+ by 2027. Yet its stock valuation is below one P/S — which is impressive since many fast-growing tech stocks can be trading at as high as 10 P/S. (Source: Oscar Health) Bottom line: Oscar is growing, and it is poised to change the way health insurance runs. You can buy this stock while it is trading at an attractive P/S valuation just as the EPS is set to jump over the next few years.. This is a growth stock to own right now. [EARN WHILE YOU LEARN! 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