Market Overview Analysis by Michael Pento covering: S&P 500, United States 10-Year. Read Michael Pento's latest article on Investing.com
So, the Fed has pivoted once again. Jerome Powell has done so many twists that Chubby Checker would be envious. Or better said, the Fed has panicked and now realized it is again offside on its inflation target.
They have been well taught by Greenspan, Bernanke, Yellen, and now Powell that the Fed stands ready to take the bottom out of rates with alacrity. Therefore, Wall Street has already front-run all of the rate cuts in the pipeline. This means further interest rate cuts on the short end of the yield curve, which the Fed controls, will only serve to push rates on the long end of the yield curve higher.
Even if we have a soft landing and inflation gracefully retreats to the Fed's target, nominal GDP growth should be around 4%, which is historically where long-term rates tend to trade. Long-term interest rates are most concerned about inflation and insolvency. With $2 trillion deficits, $1 trillion of interest rate payments, and a $35 trillion National debt , there are significant solvency concerns as never before realized.
So, the only scenario for interest rates to fall from this point would be a significant drop in the earnings and economic growth outlook. But is that what Wall Street really wants? To the contrary, investors are pricing in a 21 multiple onWe also have Quantitative Tightening ongoing, along with the reverse repo facility, which is now drained. And, even after this 50bp rate cut, the real level of the FFR remains firmly in positive territory.
As it turns out, our current Fed Head is not data-dependent at all. He isn’t cutting rates because inflation has been vanquished. It isn’t even due to faltering GDP, or a higher-than-normal unemployment rate. And it is certainly not because asset bubbles are crumbling—at least not yet. It isn’t at all because of his omniscient belief that the stock market or the economy is about to fall apart.
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