Hi I'm Jimmy in this video
we're going to look quickly at
what's been happening with the
Federal Reserve and what impact
the Fed is having on the stock
market. And then we're going to look
at what we think could
happen one of the different
scenarios as far as what
the Fed may or may not do with the
Fed funds rate.
So the US Federal Reserve is
meeting at the end of this month on
the 30th and the thirty first.
So basically here's what's happened
so back in June the Fed chairman
came out and he said that there is
some uncertainty around trade
tensions and concerns about
strength in the global economy
or ultimately a lack of strength in
the global economy.
And because of that
the Fed has gone.
The Fed is going to do what they
feel is best for the overall
economy.
Then Wall Street got super excited
about the possibility of the Federal
Reserve lowering interest rates
and then the S&P 500.
Well since then they've been up
almost 5 percent.
Now this may not sound like a lot
but it's been just about a month
since that started.
And if we were to annualize that
well that's up closer to 50 percent
on an annualized basis.
My point is that this is a very
big jump in a short amount of time
just because the Fed said they might
cut the rate now since these rumors
began. Well Wall Street's gotten
gradually more excited that
a Fed funds cut is
actually going to happen and I've
seen a few different scenarios.
The first one the most extreme
version of this is that the Fed cuts
interest rates by 50 basis points
which is the same as one half of 1
percent.
Scenario 2 is that if they cut
it by 25 basis points which
is the same as one quarter of 1
percent. Another possibility is that
we don't in fact get any rate cut at
all at least not during this
meeting. Yes.
Powell is hinted at the fact that we
may get a rate cut but he's
not directly come out and said
a rate cut will absolutely happen.
So what.
Under what situations could a rate
cut not happen.
Well Powell has stated that one
of his concerns is the concerns
over trade tensions and if
the U.S.
were to somehow close trade
deals before the end of this
month that perhaps no
interest rate cut is actually what
it plays up. But at this point if a
rate cut doesn't happen I think that
the stock market is likely to not
react too kindly to that.
Now what about a quarter of one
percent rate cut.
Well I actually think that this is
the way it's likely to play out.
And some of that is going to depend
on the data that comes out between
now and the end of the month with
some jobs data in addition to other
things.
I think personally this is the
safest pick quarter 1 percent
is probably going to be the way it
goes in my opinion.
Now if the Fed does go with a 25
basis point cut.
Well I think that the market is
likely to be disappointed by this
since there are so many people that
believe a 50 basis point cut
is likely to happen.
So what if they do do a 50 basis
point cut.
Well if they do then
perhaps the market jumps a little
bit. But frankly
I almost expect a pullback
in any scenario second back
to the old Wall Street saying buy in
the rumor and sell on the news now.
Yes I suppose that this would
mean that I believe that the market
is likely to have a pullback even
if interest rate cuts start to
happen. Now this brings us
to a quick look at some history
of interest rate cuts.
So this the Fed funds rate going
back to 1999 and as we
can see back here that
line represents the high of the S&P
500.
And as we can see the market
started. The Fed started lowering
interest rates right after
the S&P made high
and started to head lower.
The Fed continued to drastically cut
interest rates to try to get the
economy back on track.
Now if we fast forward to the Great
Recession well here
the Fed actually jumped the gun a
little bit and started to cut rates
right before the S&P 500 made
its high.
Now we know that didn't work out too
well since from the top to the
bottom. The S&P 500 was
down a bit over 50 percent.
And this brings us to today.
So let's imagine if the Fed does go
ahead and cut rates.
Well each of the last rate cut
cycles have been in reaction
to or an attempted anticipation
of serious economic problems.
And I feel like for some reason
people seem to be forgetting
that if the Fed is
cutting rates assuming that they do
well this might be in reaction
to some serious economic
data at least the data that they're
looking to me.
There doesn't seem to be any need to
cut interest rates.
I've heard some people say that this
is politically motivated and perhaps
it is but it seems somewhat
unnecessary.
This is a chart of the S&P 500
compared to the Fed funds rate.
And as we could see the
whole time that the Fed funds rate
was rising or the stock market
is up more than 50 percent
in that time period.
So clearly the market does
not need falling rates in order for
it to go up.
Unless the underlying economic
data beneath everything
is actually calling for more
trouble. So in that scenario
it would make sense to lower rates.
So what does all. This need for our
portfolios.
Well in a bunch of the videos that
I've done that talk about this
general topic I've seen a bunch of
people put comments in there and
basically what they say is that
time in the market is better than
timing the market.
And I agree 100 percent with this
and I think it does make
sense to watch the overall economy
to help us determine which sectors
we believe will do better than
others. But yes I think
it makes sense to stay invested
almost all the time.
Now I think it's gonna be very
interesting to see what happens with
the Federal Reserve at the end of
this month.
Do they cut rates do they do no cut
how much do they cut now.
I'm guessing a quarter point rate
cut is most likely but
what do you think.
Do you think that the Fed funds rate
is going to get cut.
If so how much are they going to
cut it by.
And then what do you think is going
to happen to the stock market from
there. Now I think that the market
will likely have a pullback once
the rumors turn into actual news
unless something unusual happens.
But that doesn't mean for one second
that I think it's smart for us to
pull our money out of the market.
I think that any pullback in the
market is going to be temporary
unless of course this is once again
the Fed just jumping the gun
on a weaker economy.
It's sort of like they did back in
the Great Recession but what do you
think. Let everyone know in the
comments below and if you're new
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And thank you so much for stick with
me. The end of the video and I'll
see in the next video.
Thanks.