The Fed cuts interest rates by 25 basis points … Powell sounds dovish … will Trump control Congress? … Luke Lango’s 10-point guideline for Trump 2.0 This afternoon, the Federal Reserve cut interest rates by 25 basis points, bringing the Fed Funds target rate down to 4.50% - 4.75%. While this was widely expected, the real story was Federal Reserve Chairman Jerome Powell and his press conference… It was about as dovish as anything that bulls could want. Powell sounded confident about the condition of both the labor market and inflation… he downplayed the recent run-up in Treasury yields… and he openly praised the strength of the economy. I watched the market’s reaction to his live press conference in real time, noting a steady upward progression in the three major indexes as he spoke. Here’s a brief synopsis of some of the major talking points: - The Fed is not on a pre-set course and is making decisions meeting-by-meeting. They’re flexible and will respond to the incoming data as appropriate.
- Powell isn’t concerned by the recent spike in the 10-year Treasury yield. First, he attributes the spike not to fears of re-inflation, but more so expectations of stronger economic growth. Second, the real question surrounding the spike is “will it be sustained?” Right now, this is just a spike, not a new plateau, and so Powell is unconcerned.
- The labor market is in good balance. Meanwhile, inflation is on a path down to 2%, but the job isn’t quite done, hence today’s rate cut.
- Looking ahead, the challenge will be finding the neutral rate. The Fed might slow down its pace of cuts as they approach what they believe to be the neutral rate. Powell noted, “The right way to find neutral is patiently and carefully.”
- Recent spikes in parts of our inflation reports aren’t real-time inflation; rather, they’re “catch-up” inflation. For example, old apartment rents that are now rolling over with new tenants are doing so at higher, market rental rates. While this does represent inflation, it’s a catch-up, not “new.”
- Looking toward 2025, Powell said that the economy may be even stronger than our current economy. And for Americans who don’t feel good about today’s economy, the key is sustained wage gains. While Powell believes we’re on a path toward that goal, it’ll likely take some time to be felt.
Nothing Powell said threatened the yesterday’s market melt-up or suggested investors need to fear a hawkish Fed in the FOMC meetings to come. Bottom line: Powell greenlit more gains. Circling back to Trump… The markets saw enormous capital flows yesterday, as Wall Street positioned itself for “MAGA 2.0.” However, Trump’s ability to implement all his policy proposals isn’t a lock. Legendary investor Louis Navellier shared his take in yesterday’s Growth Investor Flash Alert explaining: [Donald Trump’s] momentum is swinging some Senate races. And so, the Republican majority in the Senate is now going to be bigger than expected. The House of Representatives is a closer call. We’re not going to know who leads the House for weeks because some of these races might be litigated. You have to realize that even though there’s this Trump train of momentum underway, Republicans are still far from a majority in the House, and the House controls spending. So, the Democrats are definitely going to want to hang onto power by having a majority in the House. So, don’t get too excited about a sweep. We’re not done yet. Nevertheless, Louis sees a Trump boom on the way, and urges investors to prepare for growth: Be prepared to hit the accelerator button because Trump is going to want to grow this economy, and there are going to be a lot of pro-growth initiatives being passed. I’m very bullish on the future, and for 2025. You can get more of Louis’ thoughts about investing under Trump right here. But what about Trump’s tariffs and their potential to hurt the stretched U.S. consumer? In recent weeks, the potential for a fresh wave of tariffs under Trump 2.0 has raised concerns among some investors. Critics argue additional tariffs will hurt the U.S. consumer by raising prices on imports. While that could be the case, let’s remember that the U.S. consumer has been living in a world that reflects Trump’s tariffs for years at this point. Though it doesn’t get much press, the Biden administration maintained all of Trump’s tariffs on China. Furthermore, in September, Biden added new tariffs. From Utility Dive: The Office of the U.S. Trade Representative finalized its plan Friday to raise tariffs on a slew of goods made in China, largely adopting hikes it first proposed in May. The heightened tariffs go after strategic product categories, including electric vehicles, batteries, critical minerals, semiconductors and solar cells. The final tariff structure includes 14 product categories that cover thousands of items… The Biden administration’s dramatic hikes for this year include a 100% tariff on electric vehicles, a 25% tariff on lithium-ion EV batteries and a 50% tariff on photovoltaic solar cells. A 50% tariff on semiconductors made in China will go into effect in 2025. As to the potential for additional Chinese tariffs under Trump and/or new tariffs on European goods, Louis urges investors to maintain perspective: Let’s not overreact to all the bad press about tariffs. Tariffs will come in if trade isn’t free and fair. If Europe charges higher tariffs than we do, our tariffs are going up and theirs are going down. It’s as simple as that. It’s argued that a lot of China’s trade is unfair. So, they’ll have the biggest tariffs. Meanwhile, with Trump headed back to Washington, our tech expert Luke Lango just released his MAGA 2.0 investment roadmap It was a comprehensive, 10-point guideline for what to expect. Below are excerpts that cover each idea’s main point. It’s on the longer side, so to make it easier for you to read, we won’t italicize the content as we usually do when quoting. But this is all from Luke, writing yesterday afternoon. 1: Stocks Will Go Higher With Republican control of the Senate (and possibly the House), Trump should be able to extend and make permanent the 2017 Tax Cuts and Jobs Act. Those tax cuts should stimulate economic confidence and power more consumer spending and economic investment – the sum of which will drive corporate earnings higher in 2025 and ‘26. 2: Oil Should Stay Flat, But Inflation Will Be a ‘Wild Card’ We believe that oil prices will likely flatline over the next 12 to 24 months, with growth in U.S. economic activity balanced by headwinds related to increased domestic oil production. If prices hold around $70, inflation should remain between 2% to 3%. However, stronger U.S. growth in 2025-26 could present upside risks to inflation. We view inflation as a ‘wildcard’ risk. 3: Interest Rates Are Also a ‘Wild Card’ The path forward for interest rates and Treasury yields seems uncertain, as it will hinge largely upon inflation levels over the next few quarters which is uncertain. If Trump’s pro-economic and protectionist policies do create more inflation, which seems likely, then interest rates will not decline as much as the market expects. 4: Big Upside in Stocks Will Hinge on Inflation, Interest Rates, and Valuation While we think stocks have good upside prospects over the next 12 to 24 months, spectacular upside potential will depend on the path forward for inflation and interest rates. 5: Large-Cap Stocks Will Continue to Outperform While small caps have outperformed in the day after Trump’s latest victory, history suggests that his tax cuts, tariffs, deregulation, and other economic policies are actually better for large caps. 6: Growth Stocks Will Remain the Winners Trump’s policies should stimulate economic growth, which means they should be good for growth stocks. 7: ‘New-School’ Growth Stocks Should Be the Biggest Winners While growth stocks have performed exceedingly well in this AI Bull Market, so-called ‘new school’ growth stocks – those of smaller, disruptive tech startups – have lagged. The best benchmark for these ‘new schoolers’ is Cathie Wood's ARK Innovation ETF (ARKK). 8: Clean Tech Stocks Will Crash; But Nuclear Stocks Could Surge While the stock market surged higher today, not all stocks joined the party. Clean tech stocks, for example, broadly crashed, led by double-digit declines across many solar, wind, hydrogen, EV, and energy storage stocks. 9: Financial Stocks Should Be Outperformers As deregulation and stronger economic growth unlocked enhanced profit growth for financial firms, financial stocks were huge winners during Trump’s first term. We think the next few years should be a repeat of that. 10: Real Estate Stocks Could Struggle Like that of clean energy, real estate stocks largely failed to join today’s market rally, likely because of the interest rate ‘wildcard’ risk cited above. A Trump presidency could mean higher interest and mortgage rates. Jeff here again… To read Luke’s entire 10-point analysis, click here. It’s a fantastic overview of where the markets are likely headed, along with the key issues to watch that will determine performance. Before we wrap up, a quick word of congratulations to Luke’s Innovation Investor subscribers. They used the post-election market surge as an opportunity to lock in profits on four positions: - 40% gains on the VanEck Digital Transformation ETF (DAPP)
- 50% returns on Q2 Holdings (QTWO)
- 60% gains on Intapp (INTA)
- 200% profits on AppLovin (APP).
Better yet, if Luke’s analysis of Trump’s second term plays out, a slew of similar returns are on the way. Stay tuned to the Digest for updates on these stories. Have a good evening, Jeff Remsburg | 
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