The market waited for the Federal Reserve to speak on Friday at Jackson Hole all last week. The S&P 500 +1.05%, NASDAQ +1.08%, and Small Cap Russell 2000+ 3.19% in weekly gains, while the volume was subdued. Again, I will say this market will go lower once again soon, and I believe that a test near the recent lows lies ahead in the next 30–60 days. (Remember, I said that.) So Caveat emptor to any buyers. But I do believe the year will be strong.
The big question mark is: can the market head higher this week, fueled by Nvidia earnings, which come out Wednesday? Everyone, including myself, believes NVDA will blow revenue and earnings projections out of the water. But will the market seize on those numbers to propel this market higher? Mark me down in the camp that says probably not. (Remember, I said that.) I hate to be a Debbie Downer, but this earnings season has been a sale on the news earnings season. I look for institutions to take money off the table (Ken Griffen sold 79% of his position in NVDA) and adjust their investments to a lower interest rate environment next year, and the question mark of who is going to be in the White House the next 4 years lingers, which creates uncertainty for institutions, which they despise. Try to think like the institutional money manager (whose bonus is tied to his gains) with your own money. I am strongly of the opinion that they will NOT take NEW LONG positions before the Labor Holiday simply due to uncertainty.
The Federal Reserve
Let’s talk about the Federal Reserve since everyone else is. The Federal Reserve has Guaranteed (almost) a rate cut come September. The chart below is the CME FedWatch Tool.
The above chart says there is a 76% chance of a ¼ rate cut come September and a 24% chance of a ½ point rate cut. And the market is currently pricing in 3–4 rate cuts by year-end. I don’t see that happening currently. I see him doing 2, maybe 3. I think he is behind the curve; if we (the market) are lucky, maybe a third in December. I firmly believe we (the economy) need 3 rate cuts. Two rate cuts do little, and a third will help relieve the current restrictiveness.
Remember: growth and contraction are lagging indicators. They filter into the economy slowly, and both are difficult to stop once the trend begins. (And the current trend has been showing a very quick slowdown.).
Two rate cuts do little; a third will help and might start showing up slightly in the data by maybe July or September of 2025. Economic trends are like a fully loaded train dragging 100 loaded train cars. They take a while to get them moving in the direction you want them to go, and once moving, they take a while to reverse direction.
With market expectations currently at 4 this year, if it doesn’t happen as expected, it could lead to an adverse market reaction.
This Federal Reserve is reactive and not proactive. Meaning today’s data most likely isn’t the outcome. They are lagging indicators. The Fed has to think ahead of where the outcome most likely will be.
I am of the opinion we will get a transitory move on jobs or inflation (that’s normal) somewhere in the future. If he disappoints market expectations, expect an adverse market effect. That’s one reason why I say the federal reserve needs to set an inflation range of 2%–3%. Besides, as I wrote before, the 2% was never based on an economic study; it was based on a television show in New Zealand in the late 1980’s.
Whatever the short-term market effect, third-quarter growth seems to be intact based upon the Atlanta Fed report, which is good. As growth data comes in, whether good or bad, I will update it from time to time, as often the headlines are not the true story and create unnecessary market anxiety.
UPSTART (UPST)
Upstart is up approximately 61% from where we first started writing about it. I do not see this sustainable in the near term and do expect UPST to correct. The short sellers will most likely get a short-term win in the battle in the near term. But I believe it will be short-lived, as they will lose the war if the Federal Reserve lowers rates, as the market expects it to increase demand for their (UPST) business.
My outlook has not changed! As a matter of fact, if the Federal Reserve cuts interest rates 3 times this year, it would not surprise me to see Upstart somewhere between 100 and 150 dollars in the first half of 2025. (by the way, I don’t give price targets; I am simply stating that it would not surprise me.) If all the stars line up (read what i said about the stars lining up for UPST), I feel this is a possibility, as my belief about the short sellers being wrong has already begun to play out.
Don’t forget, currently, I am of the short-term opinion that we are in a Caveat Emptor type market environment. Better buying opportunities lie right around the corner.