Markets Bought What the Fed Was Selling

Jeffrey Buchbinder (00:00):

Hello everyone and welcome to LPL Market Signals. Jeff Bookbinder here with my friend and colleague Adam Turnquist this week. Adam, how are you? You're probably in a, a, a good mood. Your Vikings had a good weekend.

Adam Turnquist (00:12):

So a great day in Green Bay on a Monday afternoon here. Got a Vikings win Packers loss, so all is well, even though the weather is getting a little bit cooler, getting some rain today, but certainly a, a nice wind for the Vikings yesterday.

Jeffrey Buchbinder (00:28):

Yeah, finally my chief got off the Schneider with a wind late last night. Wasn't pretty, but a wind's a wind <laugh>. No I'm just, I'm enjoying this summer weather continuing here in Boston, so hopefully we will we'll get it for another week or two. So thanks everybody for joining today. It is September 22nd, 2025. We're recording this on Monday afternoon. Markets are kind of bouncing around, not doing a whole lot today. We were down early, now we're up a little bit right now about 30, 40 basis points on the S&P 500. Here's our agenda. The market recap is really going to be about the Fed. And as you see on this agenda, there's a lot of fed <laugh>. So it's recapping what the market thought of the Fed. It's our takeaways on the Fed. I guess, Adam, your charts aren't really fed related, but then as we do our week ahead, it's inflation week, the PCE, which is the Fed's preferred inflation measure.

Jeffrey Buchbinder (01:31):

So that's going to be about the Fed. So hopefully next week we'll do something different, but this week you're going to get a lot of fed, probably more than you want. But I think the bottom line is it's mostly good news. So I titled this section, markets bought what the Fed was selling. So, you know, Adam, I thought you may might get some sell the news. Of course, the, everybody expected the Fed to cut 25 basis points, which they did. There was kind of a mixed message, some dovish ness and some hawkishness in there that the confusion didn't really matter because Marcus just went up. Anyway your thoughts on last week's market action.

Adam Turnquist (02:16):

There was a little bit of everything in that fed meeting if you wanted to be hawkish. There was takeaways, dovish takeaways, even the, the dot plot. We'll go over that. Price action though constructive, I'd call it good enough for the market to continue moving higher. I thought it was really interesting after the meeting didn't really do a lot in the market. Rates backed up a little bit the next day we had some follow through. And then on Friday finished the week at back to back record highs, even though breath in terms of the advancers decliners not great. We actually finished the week with more declining shares than advancers. As we know the story there, it was those mega cap names doing most of the heavy lifting without five of those mega caps. I think the S&P 500 would've only been up about 0.2%.

Adam Turnquist (03:01):

So they contributed a large portion of the advance last week. And then at the sector level, I think it's been mostly risk on, that's been a consistent message from the market. This risk on cyclical leadership that's driving the bull market. I, I think that's a good sign for more of a durable, longer lasting bull market. I, I think those were probably the, the key takeaways. One other one that I noticed was just volatility. Of course, very suppressed, no surprise when the market's printing new highs almost on a daily basis. But the VIX actually traded up almost 5% last week at a time when the market was moving higher. So there was some de-risking amid this big risk on rotation. You had areas like the meme stocks, unprofitable tech, the most shorted baskets really rallying last week. But there was some hedging going on, at least in the the CBOE volatility index.

Jeffrey Buchbinder (03:55):

Yeah, and you often talk about breadth. We didn't really have great breadth last week, I noticed because the leaders were the big caps primarily, right? You look at communication services and it was strength in meta alphabet, Netflix and you see the large growth names just continue to power this market forward. Maybe there's some rotation and, you know, we're seeing more of a lift from Apple than some of the other names. Kinda. Apple kind of sat out the first leg of the mag seven rally here this year, I guess you could say. But large cap growth continues to be where the, where the momentum is and you know, it's really hard to, to sell that trade,

Adam Turnquist (04:38):

Right? And when you look at growth versus value, as we're always doing as asset allocators, where's the trend? Longer term? It has been geared toward growth. There has been this consolidation phase when you look at that ratio chart between growth and value. Well, over the last week we actually saw that consolidation phase end with a breakout to new highs, not only on the absolute level in terms of the, the major growth indices, but also on that relative trend as well. So that tells us as technicians, we should expect growth in that relative strength to continue.

Jeffrey Buchbinder (05:13):

Yeah. And if we don't get a sell signal, we're going to continue to hold it. So no changes in our recommended asset allocation lately still favor large growth. I think one of the more interesting things about the market reaction last week was the sell off in the bond market. So we did have the, the Bloomberg aggregate bond index down 0.2% for the week. We had the 30 year sell off about seven basis points. I think Adam, that was in response to the Hawkishness in 2026 from the Fed, even though they were pretty dovish for 2025,

Adam Turnquist (05:49):

Right? And the market came in with pretty a, a high bar for dovish expectations for the Fed. This certainly gave me flashbacks of 2024. You remember Jackson Hole, the fed queued up rate cut for September, 2024, yields actually dropped around 30, 40 basis points going into that September meeting. Of course, they cut 50 basis points, few days later, 10 year yields, for example, up around 15 basis points, we're seeing very similar price action. A very similar set of expectations from the market. Of course, we know this Jackson hole, the Fed set up another rate or the resumption of of the rate cutting cycle rates declined into that meeting and, and basically have bounced a little bit as well. I'm not saying or suggesting that we're going to have a similar playbook to 2024. The macro environment's certainly different, but I think we did set ourselves up for failure as, as speculators, at least on the, the tenure from a market perspective. because I think there was this assumption is going to be a very dubbish outcome. And now we're backing off a little bit on 10 year yields, but very much more of a consolidation when we look at, at trend, maybe get to 4 15, 4 20 in terms of a bounce. But look, you're below a declining 200 day moving average, not only on the long end of the curve, but also on the front end. That tells us expect surprises to the downside in terms of yields right now.

Jeffrey Buchbinder (07:14):

Yeah, one of the biggest risks to this market is rising yields. So even though the long end of the curve backed up a bit, we're still at reasonable levels. You know that even if we go to four 20, remember it was not that long ago when the market was worried about five. Well, we certainly don't have to worry about 5% on the 10 year right now. And you know, as long as that tariff revenue comes through, the deficit problem's probably not going to get any worse. At least not in the foreseeable future. We got a little bit of a bounce in the dollar, Adam. I think that that's another thing. Well, gold's at another record, high <laugh>. But other than that on this page, the dollars bounce, I think is noteworthy. We've been highlighting a key support level kind of in that 97, 98 range. Your, your thoughts on the dollar real quick.

Adam Turnquist (08:06):

Certainly a, a chart, maybe it could be the chart of the week, at least from a a technical view, it's right near this secular uptrend that's been in place. Going back to the oh 8, 0 9 lows from the market, and it's testing that level right now. I think the implications, if we break, call it 96, give yourself a little bit of, of a leash there on that support level, that really suggests to us there's a regime shift in the dollar from this consolidation phase that we've seen for the last several years to a resumption of the downtrend that's been in place really since, call it earlier this year, maybe January, February timeframe, if implications may be 89 point 90 on the dollar index. And the, the read throughs there expect international equities to outperform or continue outperforming, especially emerging markets. They're the most leveraged to a weaker dollar.

Adam Turnquist (08:55):

There's some interesting studies out from Deutsche Bank as well talking about pressure on the dollar from international investors as they come back into US equities. Maybe they're chasing this rally. And what they're doing is they're buying hedged ETF positions versus the unh, there's been this mismatch in allocation in terms of demand. Now, the hedged ETFs for US equities are outpacing the unhedged in terms of capital flows. So those hedged ETFs are going out selling dollars in the forward market to hedge hedge of the dollar position. And they're really dialing up their, their hedging ratios from pretty low levels. The catalyst there was really in April on liberation or around Liberation Day, the dollar did not act as its usual safe haven that actually sold off in tandem with equities. I think that was maybe a, a warning shot for international investors. They may have to rethink their, their hedging strategies, or at least the dollar as a natural hedge. It did not play out as planned in April.

Jeffrey Buchbinder (09:54):

Yeah, I don't think anything <laugh> ended up as planned in April <laugh>. No. But yeah, so the international investors can get hurt if they buy into a weaker dollar. So certainly it makes sense when you've got big moves like this, you know, five, 10% within maybe six to nine months. You've, you've gotta, you gotta think about that. So good call out there, Adam. We'll continue to watch the dollar closely. Actually, I'm, I'm writing about international equities as we speak, so I'll probably bring some of that commentary to you next week. Let's let's do a little more fed. So the weekly market commentary this week written by, mostly by Jeffrey Roach is entitled No Risk-Free Paths. You can find that on lpl.com under the research tab. Essentially the, the key takeaway is that markets and the Fed are not on the same page.

Jeffrey Buchbinder (10:50):

In fact, you could even go farther and say the Fed itself isn't on the same page <laugh>. because You have very different dots in the dot plot. And we'll, we'll expand on that here in a minute. The first point that Jeff makes in the piece is that the job market's really pretty weak. Right now. This shouldn't be a surprise to any of our regular listeners, right? We got this huge downward revision over 8,000, 800,000 jobs came out. And you see that here with the pre revision and the dark blue post revision in the orange or rust colored, I guess. So not only are these revised numbers lower, but if you look out to the recent reports, they're really not that much above zero. So an average job gain in the 20 to 30,000 range is not enough to keep the unemployment rate down.

Jeffrey Buchbinder (11:45):

And it certainly shouldn't be enough for the economy to sell to accelerate. Given how sensitive this con economy is, are dependent, this economy is to consumer spending. So weaker job growth certainly fits into our call for a slowing economy. Now, we're not really going to see much of a slowdown in Q3 based on the data. The fact this Atlanta Fed GDP trackers pointing to 3%, we think that's too high. Maybe we'll get something in the twos that's not much of a slowdown. But as we get into the end of the year we think there's a decent chance you'll see a one handle on GDP. Now, as the Fed has focused more on growth and less on inflation, that has opened the door to more rate cuts. So Adam, I guess the rate cuts are really coming in 2025, but based on the dot plots, based on the media in any way for the dot plots, it looks like we're not going to get too much more in 2026. So walk, walk us through what you think that means.

Adam Turnquist (12:55):

<Laugh>, it's a mess is what it means. I think I was more confused after Wednesday than

Jeffrey Buchbinder (13:00):

I was hoping you would strain it out.

Adam Turnquist (13:02):

<Laugh> pre Wednesday, when I heard from the Fed, their message was certainly, certainly a confusing one. When you look at what they're doing on the dot plot, of course it's the median. So we're just taking the one number and then what they're tell telling us in terms of growth, higher growth also higher inflation <laugh>, but they're still cutting rates. So even Chair Powell alluded to, actually, I think it was actually verbatim, he said, policymakers right now do not have much confidence in their forecast. <Laugh>, I was surprised I didn't get as much press as, as I thought a line like that would have, but when you look at this year, we're still looking at a couple more rate cuts from the Fed and then next year, maybe one. So going back to what we said originally, there was a little bit of everything in that monetary policy decision last week.

Adam Turnquist (13:51):

We had a little bit more dovish for this year from the Fed and then a little bit less dovish for 2026. Again, I think that's call it good enough from a market perspective. There was no major hawkish surprises. But I do think there's going to be a lot of a lot of need for, for clarity between the market and what the Fed is telling us. Because you can see 2026, the Fed Fed funds futures market still sub 3% on the upper end of the fed's target range. That, that median dot plot, obviously above that, that gap between what the market thinks and what the Fed tells us is a major source of volatility, which Dr. Jeffrey Roach talked about in our weekly market commentary. So maybe some bumps along the way as we get into probably year end here in terms of trying to figure out what this fed is going to do.

Adam Turnquist (14:45):

And of course, we got a lot of data to get through. I think there's just this uncertainty. How much tariffs, pass throughs are we going to see? What's this labor market going to do? I I would say labor market's certainly on trial right now, when you look at some of the, the payrolls data that we talked about. But also we still don't have a lot of conviction in terms of where the effective of where the actual effective tariff rate will be for the US and, and ambiguity. The market, as we know, does not, <laugh> is not something that generally warrants continuous record highs or a, a elevated valuation for now. Good enough though, I think,

Jeffrey Buchbinder (15:24):

Yeah, I mean we we're probably getting closer to the point where all that matters is what they actually do. Not necessarily the the median dot. At least that's my hope. because That'll be a little bit clearer for investors. because With, you know, Steven Myron coming in on the Fed board, he's, he's very dovish, right? And his.is a little bit extreme and somebody saying, we don't need any more cuts. To me that's a little extreme too, given the slowdown in the job market. Now you could defend that dot, you know, you could defend someone saying no more cuts based on the stimulus, right? If it, you know, if we get an acceleration in 2026 markets at all time highs, as you said, you know, maybe you could make a case there, but the market clearly has conviction that we're going to get, going to get more than just two more this year.

Jeffrey Buchbinder (16:18):

We're going to probably get a couple more next year, and that can take the, you know, the neutral rate down into the low to mid threes. And to keep the 10 year yield under four. That's what we probably need, or at least around four. We'll, we'll have to wait and see. So there's, there's multiple layers, as you said, Adam, it's confusing multiple layers to assessing the Fed. One point is you've got this gap between what the market thinks and what the Fed dots say. And the other is that you've got a lot of dispersion within the Fed, so it'll get cleared up. Our best guess is that inflation will cool enough next year to support additional cuts after probably two this year. So the last part of the weekly is about the housing market. We get asked all the time, you know, should, should we lock in a mortgage rate now or should we wait?

Jeffrey Buchbinder (17:10):

Where are mortgage rates going? Right? Generally we think they are probably headed lower. But that is a tough call to make. Remember, the Fed doesn't control mortgage rates. That is a market-based interest rate. But over time if market-based interest rates kind of follow the Fed messaging, which is certainly going to, we think, react to a slowing economy and not meaningfully slower maybe, but a slowing economy and the, the end of this tariff driven inflation push, you, you could certainly see maybe mortgage rates in the fives. So we're still in the sixes now, as you can see from this chart. But there is certainly a possibility of lower rates ahead, ahead. The other possibility is really bad right now. This is no surprise to anybody, the combination of mortgage rates six and a half, seven and high home values, right?

Jeffrey Buchbinder (18:18):

Because housing stock is pretty scarce. People are locked into their low mortgage rates and they don't want to sell. So you have less existing supply on the market that creates a very unaffordable housing market. In fact, based on this measure from the National Association of Realtors, you've got the lowest affordability rate of all time <laugh>, right? So I don't know how far this data set goes, but housing is not very affordable. So we need more housing supply and we hopefully we'll get mortgage rates down a little bit. We don't want housing values necessarily to drop but if you get lower mortgage rates, maybe a little bit of a cooling these hopefully housing can kind of grow into its affordability over time. So that's the last piece of the of the weekly check it out if you're interested. All right, Adam, back to you. Chart check records on repeat. So what's the count on S&P 500 records? Is it 27, 27

Adam Turnquist (19:21):

Record highs of the year?

Jeffrey Buchbinder (19:23):

Unbelievably,

Adam Turnquist (19:24):

Yeah, especially given all we've gone through this, recovery has just been unrelenting. I I think both you and I have talked about maybe a pullback here or there, you know, two to 3% is, is not qualifying for a pullback. I don't even know if we've had that really in, in this rally since the, the April lows. And right now, when we look at the market, technically obviously up into the right, not arguing with a bull market that's consistently making new highs against cyclical leadership. But of course we're trying to watch out for maybe a potential pullback or a pause in this rally. When we look at this near term chart formation, we call it a rising wedge pattern. They're actually bearish now. They're not the highest hit rate in terms of their success. I think I was reading the encyclopedia of stock charts and they analyze 40 different far chart formations in this ranked I think 32nd or 33rd in terms of its success rate.

Adam Turnquist (20:21):

So let's just level set in terms of the rising wedge, but nonetheless it's developing. To break that, you're going to need to see a move kind of below, call it the 50 day around 64 29. And even then, you still have a lot of support for the market. You have 6261 44, that's those February highs. Oftentimes you have these big breakouts, the market gets a little bit overbought. And then you check back to that original breakout point again for the market. That would be 61 44. I didn't, I didn't update the math, but call it six, 7% or so of downside. Certainly normal within the context of a bull market. When we look at market breadth, of course there's been a lot of talk about price moving, higher breath, not really keeping up. You can see that in the middle panel. How many stocks are above their longer term?

Adam Turnquist (21:10):

200 day moving average, 63%. Now, that's a very bullish number on an absolute term, but when you look at it on a time series, we haven't had a new high really since July, around 70%. So the amount of stocks above their 200 day moving averages actually moved lower. Same thing on a shorter term basis. You look at the 20 day moving average, only 47% of stocks earlier this morning were above their, their 20 day moving average. When the market is making consistent new highs. It's a little surprising on a short term basis. And then when we look at momentum, of course, we're overbought based on, on most measures that we look at. One that I like is just the price relative to the 200 day moving average on the bottom panel. Now we're at 11%. I think that's about a year to date high. We start getting close to to 15%. It doesn't get much higher than that. That's when that proverbial rubber band starts to snap back or at least stop stretching and maybe you get a little bit of a pause or consolidation. But certainly when you look at it collectively across the evidence that we look at technically, it, it certainly constructive overall. Maybe I, I do think there could be some room here for a little bit of a breather, just given the degree of overbought conditions, some of the, the breath measures that we look at fading a little bit.

Jeffrey Buchbinder (22:33):

Yeah, I, I gotta say I hope it was just an accident, Adam, that you showed. 6, 6, 6 6 here.

Adam Turnquist (22:41):

Oh, that was

Jeffrey Buchbinder (22:42):

<Laugh> S&P 500 was when you price this.

Adam Turnquist (22:44):

I didn't see that. Yeah,

Jeffrey Buchbinder (22:45):

I, I've seen where.

Adam Turnquist (22:46):

Is that?

Jeffrey Buchbinder (22:47):

People on trading desk talking about 6, 6, 6 was the low in oh nine and now it'd be very interesting. 6 6, 6 6 was the high, but we are at 66 91 now as I'm, yeah, looking like Bloomberg. Wow.

Adam Turnquist (23:01):

I didn't that was updated on accident. So I don't know. Maybe a bad omen here.

Jeffrey Buchbinder (23:07):

<Laugh>, yeah, a little after the open. So yes, we traded through 6, 6, 6, 6. And we, let's hope we don't close there. because That would be a little bit disturbing while you numerologists out there. Get it <laugh>, the neuro six,

Adam Turnquist (23:21):

Six indicator.

Jeffrey Buchbinder (23:23):

In internals. So, you know, I mentioned that the, the big caps continue to, to lead. Does this give us some evidence that maybe we're starting to see a little more breadth?

Adam Turnquist (23:33):

Yeah, I would say, again, on an absolute basis, you look at this in a vacuum, you got, you know, almost what, 61% of the S&P 500 in some form of an uptrend. That's kind of the, the top right of this, this chart. And we're using moving averages and how they're aligned, different types of moving averages to really define trend. We put 'em in these buckets to break down the market. You look at consumer discretionary, another positive here. 74% of consumer discretionary in a confirmed uptrend. That's as bullish as you can get. That's as bullish as we've seen this year for consumer discretionary. It was actually lagging this summer, just kind of stuck in a range. And now over the last few weeks, consumer discretionary has really stepped up near record highs for the S&Psector level as well. Where I get a little nervous here though, is tech.

Adam Turnquist (24:20):

You got 50% in a confirmed uptrend. Now, if I just told you that, you'd say that sounds pretty good, but if I told you at the end of July that was over 70%, so we've actually had fewer and fewer tech stocks in uptrends since the summer, and we're getting more and more of these, what we call potential downtrends, developing downtrends, and even confirmed downtrends within tech. Obviously a big area of focus just given it's about a third waiting in the S&P 500. That's the stat that I'm really looking at closely. Of course, you have rallies like Intel, you have rallies like Oracle that have really propped up maybe the tech sector a little bit. When we look at it in the trend model, we're starting to see, I, I would even caution to say cracks, but I think trends to follow here within the, the framework of our, our trend model. Just this slow down and kind of shift more toward downtrends within the tech sector.

Jeffrey Buchbinder (25:16):

Yeah, and tech today is kind of struggling a little bit. It, it's, I don't think it's down, but struggling a little bit with this H one B visa issue, right? Because the tech sector uses a lot, actually, Amazon's a big user of the H one B Visa program to get foreign talent to the us. So we'll see where that goes. It, it's, there may be a legal challenge actually to that. I'm referring to the Trump administration wanting to charge a hundred thousand dollars for each H one B visa. That is a big chunk of change for a company that uses thousands of these immigrant workers. So something to watch there. In terms of tech. So continuing, all right, generals Lee, this is more on breadth. That's a big topic certainly. Who

Adam Turnquist (26:07):

Needs market breadth when you got the not good caps, right? <Laugh>?

Jeffrey Buchbinder (26:10):

Well, yeah, people just continue to ask the question, when are we going to see broadening out? I'm not sure you need to ask that question right now because we're just continuing to hire.

Adam Turnquist (26:20):

No, and this is a, a simple technical story. You got a breakout in the MEG seven index. This is an equal weight. Once we're taking those MEG seven mega cap names, they're all equal weight. Looking at it on the top panel on an absolute basis and very easy story here, breaking out through the 2024 highs with very good momentum. And then importantly, on an equal eight basis, we're looking at the average MEG seven, that equal lake index again versus the equal weight S&P 500. So call it apples to apples. And that's also breaking out to new high. So technically this tells us expect that mega cap leadership trend to continue when you have these long consolidation phases after a pretty strong uptrend and you get a breakout in the direction of that prevailing trend. That's more or less the, the starting point for a new leg hire, not the end. So this looks to me technically really the, really the next phase here for the MEG seven, whether it's on an absolute basis or, or a relative basis versus a broader market here.

Jeffrey Buchbinder (27:20):

Yeah, you hear some people talk about bubble. We do not think this is a bubble, although certainly you could make an argument that we're seeing early signs of a bubble in these tech names. But if you compare it to 1999, it's really no comparison. This probably more like 97 I guess potentially 98. That doesn't mean we're not going to have volatility as this bubble potentially inflates, but we're probably going higher. So next up Russell two small caps. Adam have gotten a lot of attention because of the Fed small caps being more rate sensitive. We have talked about liking small caps as a trade in, you know, past couple of months. They, I guess we've got a first, the first all time high on small, at least on this index in several years, right?

Adam Turnquist (28:14):

Yeah. They finally punched through the 2021 highs last week, given up a little bit intraday, we'll call it, but still very constructive breakout if we can see the Russell hold that level and continue to move higher. Now the big question that we always get, and there's the headlines that small caps are backs, small caps are going to outperform. But when you look at that bottom panel, I don't know if you can quite make the case that's comparing the Russell two versus the large cap S&P 500 don't need to be a technician to see that is a consistent and steady downtrend. We're getting close to maybe an inflection point. We'll call this maybe a bottom little hard to call this an uptrend, even though we did inch above the 200 day moving average. Would like to see that reversal, have some follow through and take out some previous highs before you start really pounding the table on any type of shift to a small cap overweight allocation. But still like this as a potential trade here and small cap land. Jeff, as you talked about, certainly a beneficiary of lower rates and I think the, the one big beautiful bill act as well, that certainly added some tailwinds here for the small cap space.

Jeffrey Buchbinder (29:22):

Yeah, we're, it's not too far away from when we're going to start seeing some, some impact from that bill, the fiscal stimulus in 2026. So small caps, yeah, generally interesting place to be right now anyway, we're not necessarily long-term bulls, but I think it's fair to say we're a little bullish in the short term. Next up seasonality. This gets a lot of attention. <Laugh>, right? Everybody talks about September being the weakest month. I know we've called that out on this call but we haven't had the weakness. So <laugh>, I mean, there's a lot of reasons why we haven't had the weakness, Adam, but I think with this chart you're making the case that it could still come even though we only have, what, eight days left in the month.

Adam Turnquist (30:07):

Yeah, we're on day trading day 14. Just for a reference point here, and we thought we were done talking about September seasonality, I feel like this year more than any has been the most well telegraphed story of September being the worst month for stocks. I think that's pretty well known when you look at the progression of the S&P 500 throughout the month. Just a reminder that it tends to be backend weighted. So the weakness in September is really a second half story and starts around mid month called 1213 trading days in, that's when the S&P 500 has historically gave up its gains. Not saying history will repeat, but certainly a slippery slope here, potentially into the, the back half or, or the end of September. Again, the average decline here about 0.6, 0.7% depending on your starting point. But I do think the macro, as we've alluded to consistently matters more than seasonals. We always say that, you know, seasonals, that's the climate, not the weather. And right now the weather for the market is, is record high territory <laugh>.

Jeffrey Buchbinder (31:11):

Yeah. So this is more weather than climate, right? The fact that the Fed is cutting with stocks at record highs is unusual, but it has happened and it's bullish. Yeah,

Adam Turnquist (31:24):

Quite a few times. Actually. You can see here 28 different occurrences where the Fed cut when the S&P 500 was in 3% of an all-time high. Here's how price action under those scenarios, the dark blue will focus on that. That's, that's all cuts. So we're just looking at all periods leading into the rate cut and then what happens after? So we're, we're starting at 0.0 and gains there almost 13%. You can see when there's no recession up to 18%, and there's what, 22 occurrences that we looked at, a hundred percent batting average under that scenario. I was, I had to double check the data, but that's 12 months later, the market up 18%, all 22 periods. Of course it gets a little bit dicey, we'll call it when you have a, a recession within I think I, I filtered it out.

Adam Turnquist (32:14):

So when there's a cut within six months of a recession, the gains there up 5.4%. Some of that did include the 2020 recession, which, you know, when you look at this data and you look at recessions, it's hard to, for me, I just have to cut it and be objective and say six months, because then you start looking at each recession and, well, this one's a little bit different. So I used just a, a six month qualifier and of course some of the cuts that we saw in 2019 filtered in there. But it's a good setup for equities. I mean, no surprise, don't fight the fed. I think this is a, a pretty good chart that, that certainly would, would point to that being a, a true adage for Wall Street.

Jeffrey Buchbinder (32:54):

Yeah. And certainly consistent with the study that we showed, I think it was last week, that year two for the fed rate hiking or rate cutting cycles tends to be very good for stocks as long as you're not in recession, double digit gains certainly reasonable to expect if the economy continues to grow based on just that timing, right? Year one is the start of the cycle and then year two of the cycle, which of course we just entered last week. So really good stuff there. I guess, you know, I mentioned the bubble word again, I don't think we're in a bubble, but we've got a lot of bullish sentiment out there. So it, do you think it's too frothy, Adam?

Adam Turnquist (33:35):

Depends on what measure you look at. Here's the A A I I data. They survey their, their members and ask, what's your outlook for the next six month, six months on equities, bullish, bearish, and then we take that data and spread it. It's still negative <laugh>, it's still, you know, point negative 0.7, but it's been negative for a few weeks. There's still a lot of bears out there at 42%. That's just about a one standard deviation move above the longer term average 31, you can see in the middle Bulls picked up finally last week. I, I can't remember the exact how when the data collection is, but I think it did include the Wednesday for the Fed. So did see bulls moving higher. But when you think about euphoric type market tops, I don't think there's enough evidence to suggest that. I, I think this is kind of, if we're going to go John Templeton in his quote, maybe growing on, on optimism or <laugh> or definitely not dying on euphoria though in terms of his, his bull market adage.

Jeffrey Buchbinder (34:36):

Mm-Hmm <affirmative>. Yeah, I think if you look at maybe the global fund manager survey from Bank of America, you get a, a little more froth, a little more optimism. But this actually I think looks a little more balanced than I would've expected. So, so yeah, I mean, we're, we're continuing to recommend investors stay fully invested relative to their targets. So the optimism it doesn't bother us at this point. It's obviously connected to high valuations. But if you have good fundamentals, which we think we have by the way, earning season's coming up before you know it. But you know, a combination of fiscal stimulus, solid earnings growth, the AI trend, stable interest rates, probably contained inflation. We're not g we can't guarantee that, but probably contain inflation. That all supports a pretty favorable backdrop backdrop. So we think staying fully invested relative to your targets still makes sense here. All right. Let's end with a quick preview of the week ahead, Adam. Fed's preferred inflation measure on tap, that is the PCE and specifically the core PCE the I think we're going to see a little bit of evidence of tariff push through into that inflation data. What, what would you suggest people watch either on that particular data point or, or, or anything else this week? I know we have some fed speakers,

Adam Turnquist (36:10):

A lot of fed speak, I think with PCE, the data points that we, at least that I've been looking at is, is some of the more inflation sensitive areas, the goods components of PCE. We've seen evidence of that really across the different inflation metrics. Things like furnishing, toys, different imports, how much, how much impact we're seeing from tariffs there. And I think the big question from a market or a, a macro standpoint is really what's the market reaction? I think when you hear the Fed talk about inflation, they suggest it's a, a one-time type of event. They don't seem too concerned about the, the tariff pass throughs being sticky. So maybe the right now inflation has this free pass. If it is a little bit hot, the market's willing to look past that. We'll see what transpires this week. But I would not be surprised to see some of those more and more of those tariff pass throughs start to show up in the, the data. That's what the feds told us. That's what certainly corporate America has told us as well, in terms of what they're seeing in their, their pipeline for prices.

Jeffrey Buchbinder (37:13):

Yeah, I mean, I, I think look no further than the consumer discretionary sector for evidence that the market's not too terribly worried about inflation right now and the tariffs because that is certainly a heavy tariff sector. I mean, and great point though about looking at goods versus services. The services side's been a little maybe more of a problem than some have thought. And the good side's maybe been a little bit less of a problem than some have thought, right? A lot of folks certainly expected more inflation pushed through by now and it really hasn't happened. So we'll we think we're going to see it over the next couple of months, but hopefully we can see the peak in inflation very soon. And that can certainly support further fed rate cuts. So we started with the Fed, makes sense to end with the fed <laugh>.

Jeffrey Buchbinder (38:04):

So be watching for market reaction to the speakers. We get a bunch of speaker, I mean, Stephen Myron's talking, Powell's talking, a lot of Fed speak to maybe give us a little more clarity although maybe the clarity will come in the form of just more confusion and dispersion <laugh>. We'll see. So thanks Adam for walking through all those charts. Really great insights from you this week. Thanks for helping me understand the Fed a little bit better, although I admit I'm still a little confused. <Laugh>, it sounds like you are too. Everybody, thanks for listening to another Market Signals. We will be back with you next week where I think we're going to talk a little international equity markets. We'll see you then. Take care.