Unstoppable Momentum in Markets as Fed Rate Cuts Keep Fueling the Fire

Market continues to motor to new highs. Rate cuts are paving the road.
Market momentum appears unstoppable. Retail investors keep adding. Foreign investors keep adding. We’re not alone; several other countries are seeing new highs as well. The global index is also at a record level, as is the global index ex-USA. The bias to equity versus debt has never been higher. Corporate share buybacks have never been higher.
While the obvious question is how much better it can get, the willingness of the Fed to pursue a series of rate cuts while inflation hovers near 3% and the economy and stock market are humming only puts fuel on the fire. Even if earnings slow, the dropping interest rates will motivate the $7.3 trillion in money markets to find better returns, unleashing a serious new bid for stocks, at least dividend-paying stocks.
The government shutdown has turned out to be a buying opportunity so far. While historically these shutdowns have been very short-lived, this time might be different as it feeds the objective of the current administration to cut government staffing. Considering that the Federal budget is now over 50% higher than pre-pandemic, cutting costs is needed.
In order to make the layoffs permanent, Trump will need to get to day 61, which is December 1st. If that’s the objective, it would be a record-long shutdown and may bring ramifications yet to be realized. It will blind the data-dependent Fed and incline them to be even more dovish. But it may also all be over by this time next week, the 8-day average for shutdowns.
A pause isn’t much of a surprise after the late Tuesday rally and follow-through yesterday. Today, we’re seeing a flat market with all the major indexes moving slightly in the red after opening to new all-time highs.
On the commodity front, we’re seeing some profit-taking in (-1.1%) and (-3.9%) while copper is higher, now up 5.8% in the trailing month. is lower, breaking below $61/bbl, near the low for the year. Natural gas is up slightly. The US dollar index is up modestly to 97.6, the highest in a week. Crypto is strong across the board with Bitcoin now at $118.7K, a 3-month high.
The trend remains positive.