By John Lau
August 1, 2024 – The Fed met dovish expectations yesterday and reinforced one of the key supports for the 2024 rally: the idea of looming rate cuts. Powell all but said a September rate cut was coming and also (and importantly) floated the idea that the Fed could cut “several” times in 2024 and the market has reacted accordingly (strong rally). Fed fund futures now are pricing in three rate cuts in 2024: 25 bps cuts in September, November, and December.
The market implication of this, short term, is positive. Expectations for more rate cuts elicit a Pavlovian response in investors to buy stocks and that clearly happened yesterday as the S&P 500 rallied hard.
But while investors are focused on Powell’s dovish message, it is important to not lose sight of “why” the Fed is now telegraphing rate cuts. The Fed’s statement released after the meeting yesterday contains the language that it is now attentive to “both sides of its dual mandate,” which, in plain English, means that the Fed is now just as worried about supporting economic growth as it is about bringing down inflation. Turning to Powell’s press conference, Powell highlighted the “dual mandate,” which again means they’re as worried about growth as they are about inflation. Additionally, Powell said the Fed could cut in September and, perhaps most notably, said he could envision “several” rate cuts this year or “none” (the notable part of it was that Powell admitted several rate cuts are possible). Specifically, Powell said the labor market is facing real risks now and if the labor market goes south, that means we will get a growth scare. Bottom line: The Fed is clearly telling us they are going to cut in September. Powell also hinted at several rate cuts in 2024. Why? It’s not only because inflation is so low they can cut aggressively. It is also because they are getting concerned about growth, and this just reinforces the key question for markets for the second half of 2024: we know that the Fed is going to cut rates, but will they cut rates in time to avoid a slowdown? The answer to that question will ultimately determine the direction of the market.
From a tactical standpoint, in the short term (meaning the next few weeks), the economy remains in a Goldilocks state of solid growth, and looming Fed rate cuts, and that should support a milder, but still ongoing, rotation from tech/large-cap growth to the “rest” of the market (value) and cyclical sectors (small caps, industrials, energy, financials). So, this rotation from tech can continue, given yesterday’s news, and we will be reviewing our current portfolio mix for changes.
At Robertson Stephens San Ramon/Burlingame, we remain focused on both opportunities and risks in the markets, and we thank you for your ongoing confidence and trust. Please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.
Our clients rely on us for timely information, and our job is to deliver.
Disclosures
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any investment decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Performance may be compared to several indices. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. A complete list of Robertson Stephens Investment Office recommendations over the previous 12 months is available upon request. Past performance does not guarantee future results. Forward-looking performance objectives, targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are speculative and involve substantial risks including significant loss of principal, high illiquidity, long time horizons, uneven growth rates, high fees, onerous tax consequences, limited transparency and limited regulation. Alternative investments are not suitable for all investors and are only available to qualified investors. Please refer to the private placement memorandum for a complete listing and description of terms and risks. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2024 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.
Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Robertson Stephens Wealth Management, LLC and Fortune Financial Services, Inc. are separate entities and are not affiliated.
For information about Robertson Stephens, go to www.rscapital.com.
What the Fed Decision Means
By John Lau
August 1, 2024 – The Fed met dovish expectations yesterday and reinforced one of the key supports for the 2024 rally: the idea of looming rate cuts. Powell all but said a September rate cut was coming and also (and importantly) floated the idea that the Fed could cut “several” times in 2024 and the market has reacted accordingly (strong rally). Fed fund futures now are pricing in three rate cuts in 2024: 25 bps cuts in September, November, and December.
The market implication of this, short term, is positive. Expectations for more rate cuts elicit a Pavlovian response in investors to buy stocks and that clearly happened yesterday as the S&P 500 rallied hard.
But while investors are focused on Powell’s dovish message, it is important to not lose sight of “why” the Fed is now telegraphing rate cuts. The Fed’s statement released after the meeting yesterday contains the language that it is now attentive to “both sides of its dual mandate,” which, in plain English, means that the Fed is now just as worried about supporting economic growth as it is about bringing down inflation. Turning to Powell’s press conference, Powell highlighted the “dual mandate,” which again means they’re as worried about growth as they are about inflation. Additionally, Powell said the Fed could cut in September and, perhaps most notably, said he could envision “several” rate cuts this year or “none” (the notable part of it was that Powell admitted several rate cuts are possible). Specifically, Powell said the labor market is facing real risks now and if the labor market goes south, that means we will get a growth scare. Bottom line: The Fed is clearly telling us they are going to cut in September. Powell also hinted at several rate cuts in 2024. Why? It’s not only because inflation is so low they can cut aggressively. It is also because they are getting concerned about growth, and this just reinforces the key question for markets for the second half of 2024: we know that the Fed is going to cut rates, but will they cut rates in time to avoid a slowdown? The answer to that question will ultimately determine the direction of the market.
From a tactical standpoint, in the short term (meaning the next few weeks), the economy remains in a Goldilocks state of solid growth, and looming Fed rate cuts, and that should support a milder, but still ongoing, rotation from tech/large-cap growth to the “rest” of the market (value) and cyclical sectors (small caps, industrials, energy, financials). So, this rotation from tech can continue, given yesterday’s news, and we will be reviewing our current portfolio mix for changes.
At Robertson Stephens San Ramon/Burlingame, we remain focused on both opportunities and risks in the markets, and we thank you for your ongoing confidence and trust. Please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.
Our clients rely on us for timely information, and our job is to deliver.
Disclosures
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any investment decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Performance may be compared to several indices. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. A complete list of Robertson Stephens Investment Office recommendations over the previous 12 months is available upon request. Past performance does not guarantee future results. Forward-looking performance objectives, targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are speculative and involve substantial risks including significant loss of principal, high illiquidity, long time horizons, uneven growth rates, high fees, onerous tax consequences, limited transparency and limited regulation. Alternative investments are not suitable for all investors and are only available to qualified investors. Please refer to the private placement memorandum for a complete listing and description of terms and risks. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2024 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.
Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Robertson Stephens Wealth Management, LLC and Fortune Financial Services, Inc. are separate entities and are not affiliated.
For information about Robertson Stephens, go to www.rscapital.com.
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