This Time, Rate Cuts Will Backfire

This Time, Rate Cuts Will Backfire by Peter Schiff

DJIA Record High Today –

Dow Jones set a record high today, closing above 27,000 for the first time ever. We added 227.88 points on the day. We closed at 27,088.08. The record high, 27,088.45 set just before the close. You know, we added to yesterday’s gains, the S&P 500 was also up again – not taking out the record that was set yesterday, but we did, for the second day in a row managed to trade above the 3000 mark, although we have yet to close above it – ever so close today: 2999.91. But a very small percentage gain for the S&P, not even a quarter of 1%.

Russell 2000 Down .5% –

Broader market was weaker. The NASDAQ was actually down slightly – 6.5 points. The weakest index being the Russell 2000, down almost a half of a percent. It was lower during the day. Again, the Russell 2000 is the index that is most sensitive to the domestic economy. I’ve pointed out on this podcast many times that it is the index that is the weakest, and is not even close to making a new high. And I don’t believe it will. I think the broader market is going to roll over, and the small caps are going to lead the way.

Traders Weren’t Paying Attention to Bond Market –

In fact, if the traders were paying attention to what was going on in the bond market, we probably would have seen a bigger selloff today. I think we still have some euphoria left over from the two-day “Dove Fest” where Fed Chairman Jerome Powell was up on Capitol Hill basically green-lighting the July rate cut, which is coming up in a couple of weeks. Remember, when we got that better than expected nonfarm payroll report, the odds of a rate cut in July went down from about 100% to maybe 91%, and the odds really came down for the probability of a 50 basis points cut. So it was pretty much 91%, I think, 25 basis points, and that was it.

Odds of Rate Cut in July Back up to 100% –

But after Powell released his prepared remarks, before he even made it up to Capitol Hill – just merely when the markets got a look at his prepared testimony, the odds of a rate cut in July immediately went back up to 100%, and, in fact the odds of a 50 basis point cut went back up to 20%.

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Peter Schiff

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for more than twenty years, he joined Euro Pacific in 1996 and served as its President until December 2010, when he became CEO. An expert on money, economic theory, and international investing, he is a highly sought after speaker at conferences and symposia around the world. He served as an economic advisor to the 2008 Ron Paul presidential campaign and ran unsuccessfully for the U.S. Senate in Connecticut in 2010.