Talking Geopolitics and Markets

Jeffrey Buchbinder:

Hello everyone, and welcome to LPL Market Signals. This is Jeff Buchbinder here, your host for this week with my friend and colleague, Dr. Quincy Krosby. Quincy, I hope you had a wonderful holiday weekend. How are you today?

Quincy Krosby:

Thank you. All set for the beginning of December, and, you know, watching this market very closely.

Jeffrey Buchbinder:

Yes. I mean, what a nice run it has been. So that is going to be our first agenda item, just talking about the month of November. Very, very strong for markets. So Quincy, I want your thoughts on the drivers there, why this market's done as well as it has. Next, we'll get to your quick hits. There, you see them listed here. For those of you who are watching, we've got the dollar, oil, Ukraine, and the Fed. And then we'll close it up with the week ahead preview. Of course, it's jobs week, so that is going to be the main focus for Market Watchers on the economic calendar. But that's not all we have. We have certainly more than that. You'll see several stars on the calendar when we get to it. So let's start with the recap of, I mean, I want to focus on November, not so much just, you know, last week, but up almost 6%, Quincy, on the S&P 500 in November. You know, certainly we've had a good economy. That's helped. You know, I think the election is probably part of it. What do you think is kind of first and foremost driving this strong rally we've had?

Quincy Krosby:

I think it actually is the election, but the election provided semblance of certainty. We were always talking about that, that the market will know who is in the White House, who is in Congress, which parties. And I think also giving it an extra underpinning of a positive look for 2025 is the announcement of the Secretary of the Treasury. I think that was one of the most important components for the market of who was going to be head of Treasury, given how important it is and all of the obstacles that the Treasury Department has to navigate in 2025.

Jeffrey Buchbinder:

Yeah, I think that's right. Boy, the Treasury secretary has a long list of things to deal with in 2025 and 2026. So that was an important appointment. I think one of the topics for today is the dollar. And the dollar sold off on that news. It seems to me it was on anticipation of a measured pace of tariff implementation, right? Maybe some exceptions like we had in 2017, 2018. So I agree. The market liked it. And you know, we've gotten a pretty stable bond market and just more stock market gains. The you know, the small cap index, we'll talk about that in a minute, but the small cap index led the major indexes in November up 11% in terms of total return for the Russell 2000. By the way, the S&P 600 generated that same return.

Jeffrey Buchbinder:

So that's a good you know, barometer, I guess for risk appetite. You also have cyclical sectors leading in November. You had consumer discretionary up over 13%. Financials up over 10. I mean, you got to put a little asterisk maybe by consumer discretionary because so much of it was Tesla, which was up almost 40% on the month. But Amazon chipped in certainly up double digits. And then on the financial side certainly the financials I think liked Scott Bessent is the Treasury secretary nominee, but you also had all this focus on deregulation, merger and acquisition activity, maybe being easier to get done. Just a more favorable regulatory environment in general. That certainly helped financials in November. But, you know, if you look up and down the sector mix, it was a lot of cyclicals, a lot of economically sensitive, let's call them pro-growth sectors.

Jeffrey Buchbinder:

The worst performer on the month was healthcare. The market, or at least healthcare market, did not like RFK Junior as the health secretary nominee because of his really widely publicized distaste for vaccines. So we'll see where that goes. But certainly that's a big piece of why healthcare did nothing on the month. Pretty much flat. You also add the fact that the market doesn't really want defensive sectors right now. Healthcare fits in that bucket. So really a tough month for healthcare, even though it was marginally higher. And then the U.S. continues to dominate, you know, while the U.S. market was pretty much doing nothing but go up in November we had some losses in emerging markets and in developed international markets as well. So, you know, our advice to investors continue to focus on the U.S. That actually will be even more clear when we start talking about the dollar.

Jeffrey Buchbinder:

So the bond market I mean, certainly playing some role in keeping the stock market afloat with yields coming down a little bit last week. Here again, I think some of Trump's cabinet picks are contributing to that. We also had inline inflation data last week, the Fed's preferred inflation metric. That helped. So you ended up with you know, more than 1% gain in bonds last week and more than 1% gain in bonds last month. And really gains all up and down the bond market spectrum. So we continue to recommend that investors stay fully invested in bonds and stocks in line with benchmarks and continue to like preferreds on the fixed income side. So, turning to commodities. We're going to talk about oil in a minute, Quincy, but I think I think it's worth just talking about gold briefly because it's really been kind of all over the place. We keep bringing up the dollar. The dollar certainly inversely correlated to gold. So that is part of the recent weakness but technical still look pretty good. What do you think about gold here, Quincy, on the geopolitical risk?

Quincy Krosby:

Well, certainly gold is a favorite during a period of geopolitical risk. And we saw risk pick up. There has been a sense of the possibility of the ceasefire, which is a temporary ceasefire between Israel and Hezbollah. Already, though it's been shaken a bit. So, you know, if it looks as if the deal is going to fall apart, gold prices will climb higher. Also, gold climbed higher on the back of the escalation between Ukraine and Russia. Although, and this I think is important, this is a headline that has been making the rounds with Zelenskyy suggesting that he will give up some of the territory that Russia has taken in exchange, you never see this part of it on the internet, in exchange for NATO. Either NATO admission or that NATO will agree that it will give Ukraine special coverage, so to speak.

Quincy Krosby:

It's not clear exactly. I think he wants to be a member of NATO. He wants Ukraine to go into NATO. That may not be possible. They may... NATO may feel that in fact it is a little bit too risky to do that. But again, if it's enough to take to the negotiating table for a negotiated settlement that would be positive. And by the way, that would then probably ease money going into gold on that subject. However, gold is also very important in terms of rate cuts. So gold watches the rate cuts and just, you know, gets a bid there. One last thing about this is the buying that we're seeing from central banks for gold. And that has been very strong, although it looks as if China may not have the People's Bank of China may not have been in the gold market, but other central banks are coming into gold. One to diversify away from the dollar, but also again as a hedge against global risk.

Jeffrey Buchbinder:

Yeah, it's a great point about central bank buying. That's continuing. In fact I recently listened to a podcast that Scott Bessent did maybe a couple months ago, and he actually highlighted that point. He's a gold bull, and he brought up the central bank buying, which is pretty strong. It actually relates to, you know, President-elect Trump's comments here about, you know, warning the rest of the world, you know, the BRICS about trying to create a, you know, an opposition to the dollar, right? To essentially weaken the dollar. So he is threatening tariffs to use that as leverage in you know, slowing down China, Russia, and others from trying to supplant the dollar. I think this all, you know, it kind of all fits into the same narrative but you know, gold can be ahead certainly against all that currency volatility.

Jeffrey Buchbinder:

So thanks for that, Quincy. Let's move on and show you the S&P 500 chart, which just continues to be up and to the right. We've been talking about this rising channel. It's actually right. I mean, we're recording this on December 2, and you know, in the afternoon we're kind of flat on the S&P, but you know, when I priced this chart earlier this morning, it was just about at that line, 6,045 on the S&P 500. That is a logical place for the market to roll over because it just did that four times, five times in just the past several months. So it's going to be hard to break through the top end of this channel. That's the point from a technical perspective. But if you look at relative strength index, it's not overbought 66 on this.

Jeffrey Buchbinder:

Look, it's probably come down a little bit off of that number here today as the market has kind of cooled off just a bit from this morning. You know, so yeah... Maybe we're a little over our skis, but this chart doesn't necessarily say it has to go down meaningfully right away. So, good momentum. Let's turn to small caps, Quincy. You brought this up as a topic for discussion today after the strong November, and it's, you know, it's really become kind of a political talking point, right? Because of how tariffs and taxes affect the real performance of small caps versus large caps. So how should investors be thinking about small caps here?

Quincy Krosby:

Well, we've always discussed it, you know, from the beginning of the underpinning of an upward slope for small caps. And that began as the market started to price in that the Fed was going to cut rates, remember? And the reason that became so important is that their rate sensitive over 40%, between 40 and 43% of small caps actually are not profitable. And there are questions as to, you know, are they able to pay their loans? Remember they go to the bank. They don't go to the capital markets to raise money. They go to the local bank and they take out a loan. And those rates are still quite high. That's why overall, when the market receives that the Fed is prepared to cut rates, you will see small caps get a bid. I mean, there's a direct positive correlation.

Quincy Krosby:

However, the question also becomes how much lower the rates have to go for those companies that are not profitable and have outstanding debt. There's, you know, there's a big question mark there. And the other thing that's extremely important is that small caps overall need growth. So they need lower rates for their debt to pay the debt, the monthly payments, and they also need economic growth. So on the economic side, the expectations are they will have that. But again, you want active management because the active managers know the companies, they know which ones they're going to have problems regardless of a strong economy, but who need to be able to pay their bills, to be able to pay their bank loans. So this is really important. And it was interesting by the way, that last week small caps actually did well. Remember, they were in the green and it was red across the spectrum.

Quincy Krosby:

It was suggestive that they believe that you are going to see a rate cut. And in fact, you know, the Fed funds futures market, the CME Fed funds futures market is indicating over between 60 and 65% probability that we will have a rate cut at the December 18 meeting, December 17 and December 18 meeting. And again, you see how important it is for small caps to participate in the market when the market believes that a rate cut is coming. Now, there will be disappointment if there is no rate cut. Powell is speaking. Jerome Powell is speaking this week. If he even suggests or hints even a scintilla of pointing to no rate cut, small caps, I think are going to see a selloff.

Jeffrey Buchbinder:

Yeah, I actually have heard about one widely valid Wall Street firm that's predicting no cuts in 2025. I think, I mean, the inflation data has not cooperated.

Quincy Krosby:

Exactly.

Jeffrey Buchbinder:

Right? It's been in line with expectations maybe last month. But if you just look at the recent trend, the downward trajectory has stalled, and Quincy, you were early to call that several months ago, you know, looking at...

Quincy Krosby:

Yeah. No one believed me.

Jeffrey Buchbinder:

Base effects. Well, if the base effects are known, they shouldn't affect the market, right? But maybe they are anyway. So you had that little bit of a stall out on the disinflation story, so maybe you don't get as many cuts. We'll show you a map, or a chart, of the Fed funds futures expectations, and how they've changed here a little bit. But if you don't get too many cuts that takes one, you know, leg of the stool out from the small cap story. They're cheap. We are seeing some broadening out, you know. Trump's policies are probably a little bit more pro-small cap and pro-large cap. Certainly, we will give you that, but the rate sensitivity that you highlighted Quincy is is important. Also important is technicals, and the relative strength hasn't quite broken out yet.

Jeffrey Buchbinder:

It's close, but it hasn't really quite broken out. That's the bottom panel here we're showing. Kind of pink circle drawn on here. We want to see more of a breakout, more evidence of a change in leadership before we would consider upgrading our view of small caps. So we're still neutral, and I mean, that gives you a healthy slug. But you know, not quite more bullish than large caps. The absolute chart, though, we're right on the cusp of a breakout to a new all-time high. So that's certainly something to watch that's going to get more attention on the Russell 2000, the index Quincy that you referenced, where you have so many companies not making money. By the way, the S&P 600 has a profit criteria, so that's where you get much higher quality small cap companies. So let's turn to your quick hits, Quincy. So here are the four topics again; dollar, oil, Ukraine, and Fed. You touched a little bit on these already, but let's go into a little more detail. So first, the dollar. You wrote about the dollar last week in our Weekly Market Commentary. We didn't have a new one for today. Maybe talk briefly about that piece. What, you know, what were the key takeaways there, and then just your outlook for the dollar from here?

Quincy Krosby:

Well, first of all, statistically, we always have to qualify statistically, December tends to be a fairly negative month for the dollar, just generally. However, the dollar strength is being hit by events and comments that are not normally associated with the currency. And quite a bit of it, as you alluded to, is the leaks and the comments coming out of the President-elect advisors, and those who were going to be in the trade representative. He's already been named. He worked for Lighthouse. He worked for the President. And so the question really is, how much of the commentary is just that? Threats? How much is actually going to be imposed on other countries? And then what will the retaliatory measures be? The question why the dollar strength has inched higher as the market, and this was fascinating, as the market began to price in a Trump victory, the dollar edged higher.

Quincy Krosby:

And the reason for that was that, oh, if we have inflation, the Fed is not going to be able to cut rates, which by the way, actually strengthens the dollar. And it's something in economics called the interest rate differential. In other words, let's say vis-à-vis the European Central Bank. The market figured out that there is going to be a rate cut. They're talking about it already, and it would be unusual for the ECB not to cut rates after so many talking about that there will be a rate cut. But then again, the question mark regarding the dollar is right now, is the Fed really going to cut rates? And maybe if they don't, that would actually make the Fed more hawkish, and that would be strong dollar. So we have to keep that in mind. So that's one of the major issues for the dollar.

Quincy Krosby:

Now, you could argue that that's actually pretty good to have a strong dollar, right? It's money coming in. We always talk about capital coming in to the United States, and, but we're seeing that as well. But, and here's the, however, semicolon however common. That we have to introduce for the multinationals, which make up a good portion of the S&P 500. A strong dollar is definitely not helpful. And we go back to summer of 2022, in which one multinational after another complaining about the stronger dollar, how it was impeding their ability to compete in overseas markets. So that's a concern. And the market knows it. So, you know, how long will it be if the dollar stays this strong vis-à-vis the basket of currencies we trade against or our global peers is another way to talk about it. It's going to be interesting.

Quincy Krosby:

And then when are we going to start hearing from the multinationals about, hey, how about weakening the dollar? And you may remember all the talk about perhaps another intervention bringing together countries the way they did with the dollar back in the day when they met at the plaza. It was called the Plaza Accord, to have every country come in and help the dollar weaken. And so there were questions about the dollar recently. Would we have that? Would we be able to have that? But nonetheless, I think what'll happen is as we get more information about the tariffs and the retaliatory measures, the dollar will move accordingly, up or down. And again, it will be based on what the market sees as the inflationary impact and the Fed's reaction. So that's, that's the issue of the dollar. Now, needless to say, you also have money coming in on the strength of the U.S. economy.

Quincy Krosby:

Take a look at consumer spending and take a look at the payroll reports. You know, they're still strong. We look at the weekly, the initial unemployment claims. Money will come into the U.S. because it's a country that still is underpinned by strength as opposed to many of the other global leaders that are struggling. I also want to point out Japan, and the only reason I'm bringing up Japan is that there may be a suggestion at the December meeting, which is very soon for the Japanese central bank, that either they have a hawkish comment about raising rates again, or they actually go ahead and raise rates. It's difficult to understand whether they will or will not given the sensitivity regarding a strong yin, because we may remember what triggered the unwinding of the yen-fueled carry trade.

Quincy Krosby:

It was a comment from the Japanese leadership saying, we may be raising rates. And boy, did that cause commotion in all of the markets as that carry trade unwound. Now you have to say who is going to go ahead and have a lever, because you're always worried about leverage. So that's the main reason. Who is going to take on tremendous leverage knowing that the central bank may be poised to either do a hawkish commentary about raising rates or do it? I mean, you only have to follow the data, and you're starting to see inflation kicking up just a tad in Japan. And that's the reason that markets are expecting that perhaps they go ahead in December and actually raise rates. And again, if you're in the carry trade business, so to speak, you don't want to be there. You don't want to be in that space. So that's going to be very interesting. There are a lot of people who are, who are watching that and wondering if it's going to affect, again, another unwinding.

Jeffrey Buchbinder:

Yeah, it's a good point about the yen from what I'm seeing, coming out of that central bank of Japan, their comments will have to be very hawkish if they don't actually hike.

Quincy Krosby:

Yes, exactly.

Jeffrey Buchbinder:

And that these are some strong words coming out of there. And I guess that could provide some counterbalance to maybe limit some of the dollars advance. I mean, we're nowhere near where we were in 2022, right? You could see how this chart. I don't go back to January, 2022, but back to September, 2022, that this dollar index the DXY was at 116, or give or take. Now we're in the 106 range. So we've established this new trading range. We'll see if this upper-end of the range holds. For now, it looks like it is. But you know, once we start getting those tariff announcements, we'll have to see. In the past also, you know, from a technical perspective, you've seen the RSI 14 when it hits right around 70, just roll right over. And you know, we've got those five times circled here over the last 18 months or so.

Jeffrey Buchbinder:

When the dollar has gotten overbought, it has come right back down. And that just happened. We just got overbought. So maybe we're due for a little cooling off period, I guess is the bottom line. And we'll see what trade policy looks like as we get into 2025. So again, so Quincy wrote on the dollar last week, that's the Weekly Market Commentary, which you can find on lpl.com on the Research tab. Let's turn to oil, Quincy. This is in the headlines too. I mean, pretty much all the areas you focus on have got a lot of headlines lately. And this was around OPEC, right? And maybe, you know, maybe they have to pull back on their plans to increase production, right? Because oil's at 68. It's stuck in the mud.

Quincy Krosby:

Exactly. And one of the things that, I mean, that they're probably discussing is whether or not they go for, and this is they have to make a decision, is do they go for market share? In other words, the expectations are that the Saudis want to maintain a level of $70 a barrel. That would be on WTI, West Texas Intermediate crude, which is the U.S. benchmark. And rent is a little bit higher because it's the international benchmark. However, if they can't do that, we have seen them in the past just go out and basically grab market share. Allow the price to come down and just go out and grab market share. So I don't think they made up their mind. I mean, the expectations had been that over this last past weekend, we would've had an announcement and it's been delayed as to what they're going to do.

Quincy Krosby:

The expectations were that they would make an announcement that they would not increase production. So the question is, remember they already had delayed that, and then they made announcement that there would be no further production. And now the question is what are they going to do? Are there going to be production cuts? It doesn't seem as if the market needs any more oil right now, but the other question really becomes, at what point do the U.S. producers decide that they are going to hold off? So that's one of the reasons we're watching very, very closely the recount, because the recount will give us an idea as to whether or not American producers, which by the way, we are the leading producers in the world, but whether or not they're going to do more drilling, because then you would see it starting to show up in the rig count.

Quincy Krosby:

Then there's the other aspect to this, and that is the tariff aspect. And that has to do with Canada. Even though we produce the most oil in the world, we also import oil. And our major partner happens to be Canada. And for obvious reasons, they're nearby. It's easy to get the oil. And what that allows is for American producers to export quite a bit of oil. I know it may sound... It's too geeky for me to go into it on this call, but that is the relationship. And the President-elect made it very clear to Justin Trudeau who flew down to Mar-a-Lago and said, you know what? You either close those borders and make sure we're not having any migrants coming across the border or guess what, we're going to throw tariffs on you.

Quincy Krosby:

So that has also come into the mix, although there's the headline out of Canada right after the meeting that they are on it, quote unquote, they're on it, in terms of the borders. So that's going to be interesting. But one other aspect to this, and that is China. China is the world's second largest economy. They are the largest importer of oil. Now why this is important is you might say, where are they getting the oil from? They've been getting it from Russia. They have been getting all from Russia all along, despite the sanctions they are getting all from Russia. Now, there was a report showing that manufacturing had actually turned the corner, two reports in a row, manufacturing higher, and yet it was not enough to increase oil prices. And I thought that was very interesting, nor were there any other commodities, you would think that at least copper would start rising.

Quincy Krosby:

No, which makes one think that the market doesn't think that these numbers are viable and that most likely a good portion of the new orders and the export numbers that are coming from the manufacturing side are mainly due to importers going in before the tariffs hit. Just going in and ordering as much as they can before the tariffs hit. And therefore it'll be hit by tariffs. And then we're at another phase. So it's extremely interesting. The other area for oil, and I have to mention this, is oil prices moved higher on the back of the Hezbollah-Israeli conflict. Why was that so important? Because the notion was that the Israelis could basically go to Hezbollah's, how shall I say leader, which is Iran, and just go right into the oil fields and, you've notice that it's been holding off.

Quincy Krosby:

But as you know, we look at the back and forth. Iran has said over and over again, we're not sure. We haven't yet decided about our strike on Israel. Because it's sort of their turn now to strike. Going back over to the oil prices hitting $70 a barrel and hitting 71 on West Texas Intermediate crude, WTI. That had more to do with Ukraine and Russia, and the concern that Ukraine was going to hit quite a bit of Russia's oil supply. They've actually gone after tankers before and actually knocked them out. And we've seen oil prices claim higher. But the concern has been that as Ukraine now has permission to use long-range missiles, they will go and attack as much as they can of the Russian wall complex. What that would do would create disruption of supply, which happens to be one of the main catalysts for oil prices climbing higher. So that is your oil story. The oil market is not going away. They watch these events very, very closely and they're usually the first indications that things are heating up in terms of the combat.

Jeffrey Buchbinder:

Yeah, for our team, you know, we're kind of treating oil like a show me story. You know, we're underweight energy right now and, you know, we'll consider an upgrade when the price tells us we should consider an upgrade because, you know, we've seen plenty of catalysts. I mean, you just listed several Quincy, and yet oil hasn't moved in basically two years. So I mean, sure, there've been some ups and downs, a few bucks here, a few bucks there. But if you really want a you know, sustained outperformance of the energy sector, you need more of a move in oil prices. Gas is starting to make a little bit more of a move. So that's helpful incrementally. But oil's just, and it's a good thing, good for the economy, especially during holiday shopping season, that oil is down. But this is just not a great environment for energy sector investing in our view. So you talked about Ukraine a little bit, Quincy, I'm just showing a map that I pulled off of this Institute for the Study of War, which has some interesting stuff showing the you know, territories within Ukraine that have switched hands. And any comments on the map or on the conflict more generally that you want to add to what you just said?

Quincy Krosby:

Well, yeah, I mean, obviously there are concerns that with the Trump administration coming in. There may not be as much support from the U.S. side for Ukraine and that the Trump administration will put pressure on Ukraine and Russia to you know, negotiate a settlement. You know, but we've had these headlines before and then they just dissipate. So the question is, you know, at what point are they going to be forced to sit down and, you know, the new administration, the incoming administration, claims that they will be able to help. Someone is in place right now who already seems to be, you know, trying to work this through with both sides. So that'll be very interesting.

Quincy Krosby:

You know, one hates to talk about the interconnection between one asset class and another, but one of the things I think you'll see if the market believes that there will be a negotiated settlement, I think commodity prices are going to move higher because there's an awful lot of money set aside for Ukraine to rebuild. And that is going to be a major rebuilding just as you're going to see a major rebuild in the Middle East. You take a look at parts of Lebanon that just simply destroyed the whole Gaza region. Destroyed. There's going to be a lot of rebuilding, and it's going to require industrial metals. It's going to require everything that you would need for creating, you know, new cities. So, you know, the markets have no feelings. The markets have no emotion, and they move based on what they believe is going to happen. So you probably see an uptick in commodity prices should the market believe that there's going to be a a negotiated settlement.

Jeffrey Buchbinder:

Yeah, that makes a lot of sense. You know, obviously a long-term story, but yeah, but certainly, you know, there are other elements to the potential for commodities to rebound. We wrote about commodities in our 2025 outlook, which we'll release next week. So you'll see some of Quincy's thoughts there on that space. You know, electric vehicles use a lot of copper. You know, nuclear power building out new nuclear reactors over the next several years. There's certainly commodities involved in that. Obviously uranium, and there are other AI, and all the data centers. There's a lot of commodity intensive building going on and that will continue to go on. So that's an interesting trend to watch. So let's go to the Fed quickly, Quincy, and then we'll preview the week ahead. I guess the simple question here is, does the market have it right now? Are we going to get three cuts between now and the end of next year? Is that too high or too low?

Quincy Krosby:

You know, quite a bit depends not even on the data, per se, but on the Fed's view regarding small business owners, because those small business owners are the backbone of hiring in the country, but they all, they don't go to capital markets. You know, I alluded to it in the, you know, in terms of small companies, but we're talking about much smaller companies, and they don't go to the capital markets. They go to the bank, and the Fed understands that they are still paying too much for those loans, and it's difficult for them very difficult for them because the rates are still quite high. Similarly, lower wage earners are under pressure. And if you follow the the chair, Chair Powell, over the years, he has made comments about the need to help underpin the success for the lower wage earners.

Quincy Krosby:

And I won't get into the various scenarios in which he talked about it. I found it interesting some years back, even with the understanding that it could actually push inflation just a little bit higher. So if they felt that they needed to cut rates for that cohort, which we're talking about lower wage earners, and also small business owners, maybe they do come in with a rate cut. Maybe that is why we're seeing, you know, 60 to 65% saying that there will be a rate cut next week. But certainly the payroll report is going to help the market decide. And I think we have one more inflation report coming out before the December 18 decision. So the question really is what do they consider to be most important? The fact is inflation is high. Not 7%, but we're looking at, you know, just under 3% or 3% and then 2.8%.

Quincy Krosby:

They can't declare victory yet on inflation. And so, you know, chairman Powell made it clear they don't want to repeat the mistakes of the seventies where we had stop and go, stop and go, and stagflation was introduced into the economy, and it took an awful lot through Paul Volcker to expunge stagflation from the mindset, let alone the actual numbers. So, you know, that I think is a debate that they have to work through. But my thinking, my own thinking is if the next inflation report that comes in before the meeting indicates that inflation is moving even higher than the past two reports, the CPI and the PCE, maybe the Fed does go ahead and hold, but a hawkish hold, very hawkish pause.

Jeffrey Buchbinder:

Yeah. Our house view is that we get a cut either this month or next month, but not both. And then you get a couple more maybe in 2025. So that seems reasonable. And if you get down close to 4% you know, that can keep the you know, the 10-year yield, hopefully capped, maybe only capped at four and a half. We'll see. We're down around 4.25 now. But that's really key. You want lower inflation, Fed rate cuts, and a capped 10-year yield to help support equity valuations and the economy. So we have to continue to watch the Fed really closely because you know, they're certainly different scenarios. This could break different ways. Although our biases, again that we continue to get lower inflation, we've just stalled here for a period of several months. So it, you know, we talked about some of the things coming this week already, Quincy, with the jobs report, maybe we'll start there. You know, I've read that about a hundred thousand jobs were, you know, taken out last month to weather and strikes. Do you think we'll get that back and do around the consensus 200?

Quincy Krosby:

That's the consensus. But it also has, you know, unemployment staying at 4.1, which is really important. And also that wage wages are just a little bit lower, which would help the, the Fed, I think, in terms of feeling secure about a potential rate cut even on December 18, because if you start to see wages climbing higher, then it's always the expectation that companies try to push that higher wage number into prices. What we did get, I just want to point this out. We got some good news from the ISM manufacturing survey in terms of inflation. The prices held steady, and that is exactly what the Fed wants to see. I just I wanted to interject that.

Jeffrey Buchbinder:

Yep. Good point. The good ISM number today. So we get ISM services on Wednesday. That is an important data point. But the jobs report, I mean, and I guess unemployment claims are always important these days on Thursday and then Friday, the payrolls will be the big data point of the week. So we'll watch it all and certainly continue to communicate our thoughts to you in our various channels on lpl.com, in our blogs, various videos on YouTube, the LPL Research YouTube channel, and elsewhere. So with that, we'll wrap up. So Quincy, thanks so much for joining. Always enjoy hearing your thoughts on all of these global issues, geopolitical issues. Thank you to all of you for listening to LPL Market Signals. We will be back with you next week. Take care, everybody.