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The Exchange
Countdown To The Fed Decision 10/29/25
00:43:41
The Federal Reserve expected to cut rates by a quarter-point. Seymour Asset Management's Tim Seymour and BD8 Capital's Barbara Doran join for the hour to break down what that means for your money. Plus, we look ahead to big tech earnings as Nvidia's market cap crosses $5 trillion.
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B
Hey, friends, this is Audie Cornish, host of CNN THIS morning. And the assignment. And guess what? Every story you care about, every angle you want unpacked is now streaming on cnn. That means you can catch my show or other CNN programming whenever you want on your favorite device. And a subscription also gets you access to exclusive video series and unlimited articles. So subscribe to CNN at CNN.com/subscription.
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C
Happy birthday, Jyoti as well. All right, thanks very much, Scott. Welcome to the Exchange. I'm Dominic Chew in for Kelly Evans. And we are in the final countdown. It's on to the Fed decision. With me for the hour, BDA Capital Partners, Barbara Duran alongside Tim Seymour, CIO of Seymour Asset Management and of course, a fast money trader. We've got a lot to get to this hour with stocks once again at record highs and Nvidia making history yet again with a trillion dollar market cap, the first stock in the S&P 500 to ever do it. We're going to get to all of those stories, but let's first get straight up to Steve Liesman live at the Fed with the set up for today's rate decision. The countdown is on. Less than an hour. Steve, what are we expecting? We know.
- [01:47]
D
Yeah, markets are almost certainly going to get the quarter point cut that they priced in from the Fed. Question is whether amid inflation running above target and a lack of economic data from the shutdown, if the Fed feels comfortable affirming the outlook for additional cuts in the meetings ahead. Since the last meeting, several Fed officials have expressed a note of caution of plowing ahead with rate cuts while inflation runs above the 2% target and the Fed lacks key economic data points. Even Fed Governor Chris Waller, he led the charge on the committee towards these lower rates. He told CNBC in mid October that he thought the Fed should not be too aggressive until it could resolve the conflict between high, high GDP growth and lackluster employment gains. Well, futures markets have priced in a 98% chance of a cut today and 84% of one in December. Less certain about a January cut with just a 42% probability. More certainty into April or March. Sorry, into March. One dovish offset could be the Announcement by the Fed that it's ending the runoff of its balance sheet. Quantitative tightening maybe as soon as this year or early next year. That could mean a renewal of purchases next year to offset the natural runoff of securities. Not QE though. But the uncertainty over rates is a direct fallout from the shutdown. The Fed is forced to both make and guide policy without key data and it could dial back that guidance Now.
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C
Dom, is there any indication right now, Steve, we know that the Fed is going to come to a decision. They have to come to one. What exactly they have been looking at, what have they been kind of evaluating in the absence of the government data X CPI that we got last week?
- [03:22]
D
Yeah, it's a good question. I expect maybe it to be asked at the meeting, Dom. Well, we know that a lot of the data that they look at is stuff that we get. It's their regional Fed surveys that when you put them all together they kind of give you a pretty decent picture of what's happening, employment and prices. There are some private sector inflation series that we're all looking at and I think they get some other data to some high frequency credit card data may be something they're also looking at. So I think they have the data, but I also think, Dom, that they would say that they don't have all of the data they need and that this government data is very important to determine where the economy is and where it's going.
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C
All right, not flying blind, but maybe slightly visually impaired there, Steve, thank you very much for that. That's the setup for the Fed. Let's talk now about the setup for investors ahead of the Fed. Now Tim, we're going to start with you on this first. Sure. Markets at or near record highs. They've been on this trajectory pretty much without lumps since the Liberation Day post Liberation Day, so called Liberation Day lows. As we look out to the future and this Fed rate decision and the first quarter of next year, is that trajectory still higher? Is the path of least resistance up?
- [04:32]
A
You know we have seasonal factors. First of all, great to be here, Dom. It is an exciting day no matter what. If we think there's a fade accompli on 25 bips, there will be something exciting today. And I, I think about the earnings season we have. It's a huge night after the bell. The earnings season so far has been impressive and I think the margin story has shown that. I'm not sure this is a straight A read through but I think this is a dynamic with companies that have been running more Resilient, leaner and meaner because of tariffs. I think the dynamics we have with the broader economy are, you know, sideways here with the Fed in play the way they are is very good. So I see international markets, I see trade deals, I see a lot of, a lot of money market on the sidelines, almost $4 trillion of cash that I still think, you know, we hear both sides of this. There are those that say this is a better time to be putting money into cash and if you're risk averse. So I think the setup remains very strong between now and Thanksgiving if I want to be my seasonal trader here. And I say that's typically when you get a pretty good run. I don't, you know, I don't think the Fed is going to derail that. My sense is Washington's going to continue to do their part and investors are uneasy about this. And sometimes that wall of worry is what takes markets higher.
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C
Barbara, has this been something that you've been expecting? Have you been keeping your client base and the rest of your ecosystem and involved in those equities that have been driving the rally for a while? Has the momentum been there and will it be there? Do you stick with the winning trade?
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B
Well, there's a couple of questions there. One is, yes, I'm sticking, I've stuck with all the big, you know, tech names, you know, for a while and I will continue to. But they do periodically get ahead of themselves and we have seen that the last few years where you'll have bouts of profit taking. And you saw it as recently as a couple of weeks ago when we had President Trump's tweet of 100% tariff threat on China. And then after that we had the regional bank upset. So we will periodically have that. But, you know, I think Tim's right. I think the momentum is forward right now and you always have to be concerned when the market is a 23 times because the slightest thing can lead to more volatility. But as I think we saw, the resilience, and that is a word much used this year, is very much intact. And again, it's earnings. Earnings are coming in very strongly. In fact, you know, as of late last week, 29% are reported, 87% are, are beating on earnings and 83% on revenues. And that's much higher than even the five and 10 year averages. So I think that is key. And even when the Fed comes out later today, and I think we're all expecting that, you know, knowing Chair Powell, he will hedge his bets. We don't have enough economic data. Excuse me, particularly because the shutdown. So but I think the market will still expect that given the labor uncertainty, that there'll still be another cut.
- [07:07]
C
This just a quick follow up there. From your investing methodology and perspective, did it matter to you as much that we haven't had the government data come out at its regular cadence at all over the course of the last month or so?
- [07:19]
B
No, actually it hasn't. You know, you saw the CPI number on Friday. That was actually very encouraging. It was up as expected. Excuse me. But it was less than expected. And certainly all the private data coming in. And whether it's the blackstones of the world who are invested in hundreds of companies giving us their data or the.
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A
Challenge, we've heard, we've heard from the credit card companies, I mean even Visa last night.
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B
I mean those numbers booking.com this morning, what they're seeing in terms of travel. That's exactly right. You know, the big banks obviously who started off the earnings season, they don't, they do not see a ripple in the current here.
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A
I just really the leadership from semiconductors, which has been more or less the story for the last three years, but even from that, that V bottom have outperformed the S and P by 50%, not 5%, not 1050. Now we know markets are up in the semis, are up 80 during that time. But until we see that leadership change, markets are going higher.
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C
All right, Tim Barber, they're going to be with us for the entire hour here. So our first guest for this whole countdown is going to be saying that the Fed isn't cutting rates today because of the labor market deterioration, but because there is a risk that it actually might deteriorate. And in the absence of data saying so she'll be listening extra carefully for Fed Chair Jerome Powell's description of how risk is evolving. Joining me now is Claudia Sahm, chief economist at New Century Advisors, a person who watches the labor market very, very intently. So, Claudia, thank you for being with us. You've heard a lot about the anecdotal evidence or things that they are looking for with regard to just how much the data is not telling us or telling us. So as an economist, how much does the lack of data factor into what your views are or are not?
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E
So it's we do have a lot of information about the labor market, in particular the labor market. There's a lot of private sector data. There are surveys. What we're missing is the core of the data not having the federal statistics, not having the Employment report, household survey, particularly a measure of unemployment. And it's, you know, the timing is really unfortunate because again, as you noted, it's the, the Fed began reducing rates again because it is concerned that the labor market would be deteriorating and that you could have these slow job creation that we've seen turn into actually a contraction in jobs and then potentially a recession. So they really want to get a sense of the momentum and that's when some of our key statist went dark. And I mean, this, you know, the disruption of data is probably going to last even after the government reopens. So, you know, I think that piece of like, what does Powell tell us about how, how are their assessments of the risks around employment and inflation changing or not changing? Probably today he can still point back to September. Things are largely as they were. But I think part of that is the fact that they don't have the data that they'd be confident enough in to kind of change the story, say, hey, the labor market is getting better or really double down on, it's getting a lot worse.
- [10:16]
C
Claudia, you're perhaps best known, you know, for this idea that you have a methodology, a construct by which you can signal a possible recession before the GDP data actually confirms. So, so with the data that you have and what you do not have, can you tell us whether or not America is in a recession or not?
- [10:40]
E
Well, I can tell you that the recession indicator that I have isn't well suited to this moment. So in that it's looking at changes in the unemployment rate and we know when there are big swings in the labor force, in the supply of labor, it can, it can create changes in the unemployment rate that aren't the kind of changes we see in recession. So last year, the recession indicator actually triggered, and we had a big period of, you know, particularly from immigration, but also labor force participation, we had a big increase in the labor supply. So that was kind of pushing, pushing up the unemployment rate, but for a good reason, because people are out and they're getting jobs. And it came back down and now the indicator is at 0.1 relative to its threshold of 0.5. So if you just looked at that, we're nowhere near, you know, being in a recession. But I would say that right now we have the opposite of immigration has really slowed and we've got a labor force growth that's slowing and that actually can push down on the unemployment rate. So I think this is one where some of our typical rules of thumb, I mean, they, a lot of them broke during the cycle at various points. But I also think right now, again, when we have these big movements in supply, it's much harder to read our statistics. And then we don't even have the statistics right. I can't even give you the updated version of my indicator because we don't have the unemployment rate for September.
- [11:54]
A
Nick. Claudia, it's Tim. It's fascinating to have you on a day when not only we're going to get a little more insight into the Fed's thoughts, but we've been getting all week this concept of white collar jobs that are being eviscerated by AI. And so in terms of the velocity of change in this, which is again keying into an approach you take. And of course these aren't official data points, but you know, GM today we've gotten the numbers all week, whether it was Amazon, whether it was, you know, some of the other larger tech companies. Do you have some sense where some of the methodologies may have to change in an AI world where suddenly there is a structural element of labor that may change dramatically in the next couple of years?
- [12:36]
E
Right. So first I'd underscore these layoff announcements. Very important to keep track of. And there are some metrics that, you know, try to roll them up together like with the Challenger data or the Warren data and you know, so we want to look at them but they're good as complements, not substitutes to the main data from the federal statistics. And here the thing the representation is, I mean these are big companies, it's a handful of companies. We don't get the headlines on the ones that are hiring because that's always happening. You know, we get a lot of churn in the labor market. And I will say, you know, in terms of how, how might the statistics need change to reflect artificial intelligence? You know, the Census Bureau has launched its Business Trends and Outlook survey. So it's a, you know, every two weeks and they're going to businesses represented the US various sizes and you can see in there that adoption of AI use, both current use and intended use has been rising over recent years. But it is still very low overall and it's very concentrated. So tech and increasingly say finance industries are ones where you see some more of the take up. But it's not a feature of the labor market overall. I don't think, think, you know, it's not the statistics aren't, they're missing it. It's just we're not at full adoption. But it is giving us a window of where the labor market could be headed.
- [13:46]
C
All right, Claudia, Sam with New Century Advisors. Thank you very much. And we know you'll be looking for all of that stuff coming to the press conference, earnings reports and everything else with regard to labor. Thank you very much. We'll talk to you again soon. All right, now we've got a developing story on some tech outages happening right now. Let's get out to Mackenzie Sagalos in San Francisco for more on that. Mac, I know some people out there are experiencing some latency with regard to their access. What's going on?
- [14:10]
B
So Don, we're seeing reports on Dow Detector of outages at Google Cloud and Microsoft's Azure hours before both companies report quarterly earnings. Microsoft's investment relations page where it posts those results is currently not loading. Now I'm out to Alphabet and haven't heard back but the Azure support account is acknowledging the outage, saying that they're investigating an issue impacting their cloud service. The company adding that customers may be experiencing issues accessing the portal. This comes after last week's 15 hour Amazon Web Services outage that took down numerous major websites though telling me that they are operating normally right now.
- [14:46]
C
Don all right, Mackenzie Scala said with the latest there on cloud. Thank you very much for that. Coming up, there's a crowd. Just as Apple and Microsoft get comfortable in the $4 trillion market cap club, Nvidia is creating a new club all its own, becoming the first company to hit a $5 trillion valuation. This, by the way, is Alphabet. Metal platforms and the aforementioned Microsoft get ready to report their results after closing bell. The stakes they're high, what to watch, how to position into those prints. Coming up next, the exchanges back after this.
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Hey, friends, this is Audie Cornish, host of CNN THIS Morning and the assignment. And guess what? Every story you care about, every angle you want unpacked is now streaming on cnn. That means you can catch my show or other CNN programming whenever you want on your favorite device. And a subscription also gets you access to exclusive video series and unlimited articles. So subscribe to CNN@CNN.com subscription.
- [16:58]
C
All right. Welcome back. It's Fed Day, but it's also a big day for tech earnings with a combined nine plus trillion dollars worth of market cap getting ready to report the results. Alphabet, Microsoft and Meta platforms are all on deck after the closing bell. This is all as Nvidia makes history, becoming the first company to reach a $5 trillion market valuation. Despite all these massive metrics, our next guest says we're still in the early innings of the AI buildout. For more on just how critical today's earnings reports will be to that narrative and who's best positioned into those prints, let's bring in John Belton, growth portfolio manager over at Gabelli Funds. Tim Seymour and Barbara Duran are still with us as well. John, you kind of heard the conversation about, you know, the economy and Claudia and the lack of data. Does any of that factor into how you are viewing the economy vis a vis the massive moves we've seen in these tech media and telecom companies on the mega cap side going into this, these prints?
- [17:56]
F
Well, yeah, nice to be with you, Dom and Tim and Barbara as well. But I think as always, we're following whatever data we have access to. In this case, in this environment, we have access to less government data, but we still have access to company data. So we're following data releases and seeing how that's going to inform our expectations for company earnings.
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C
As always, what is what has that data told you so far? I mean, we have the big ones coming up here, but you've been following along with the ride is the earnings season and the commentary supportive of of even higher valuations for these tech media and telecom companies?
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F
Well, I'd say it's so far been supportive of higher earnings expectations, which is what's been driving stocks. I think Barbara cited the stat that over 80% of companies that have reported so far S&P 500 companies are beating revenue expectations. So that's a constructive environment. We had a read Last night from Visa, which shows, you know, spending trends through the first several weeks or first few weeks of October, which looks like the consumer is still healthy. And that bodes well for some of these big tech platforms.
- [18:57]
C
Every time we have valuations climb to these record high type levels, whether from an index level or from the component level, many of these companies are at or near record highs right now. There is a debate about whether or not that kind of thing should be bought a record high or taken profits on. From your perspective, what needs to happen with these earnings reports over the next two days for these key mega cap companies to make sure that the catalyst is still to the upside?
- [19:24]
F
Yeah, well first let me just define what record high valuations mean because I think speaking with about the tech group first, they're record high market caps, but they're not record record high valuations. Nvidia is kind of the perfect example of this. If you rewind three years ago Nvidia was trading somewhere 25 times forward earnings. It's more like 20 times today. So you know, that just goes to show what's really driving these stocks is fundamentals. And so I think you keep buying these stocks so long as the fundamentals remain strong.
- [19:54]
C
If the fundamentals are strong right now, how much do they have to perform to stay strong to a level that justifies the valuations even if they are slightly below the next 12 months multiples that you saw earlier this year?
- [20:09]
F
Yeah, I mean I think the answer to that is really bottoms up. It's case by case. It kind of depends on the stock. I think by and large these companies have to beat expectations on these earnings prints. Especially after the moves that we've had over the last couple of weeks. The expectation is tonight. We have of the mag 7, we have meta, we have Microsoft and we have Alphabet. All three of those companies I think definitely need to beat published sell side estimates. I think that's investors are already pricing beats in and then I think yeah, guidance two of those three companies guide and we're hoping to see guidance above the street as well.
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C
From your perspective as a pm. Of those five names that are reporting over the next two days, what's your favorite?
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F
Well, it depends on your time horizon. Are we talking one week, one year, 10 years, the next year, the next year? No, I still like Amazon. I think Amazon has really been, it seems like the most hated of the Mag 7 right now by investors. It's been the laggard of the group year to date. Despite the fact that I think the businesses is performing really Well, I think you've got a cloud business that's still the number one cloud platform, still growing in the high teens, revenues, still expanding, margins and then you've got this really interesting profitability story on the retail side. So I think Amazon, a lot of what they're doing with robotics in their fulfillment center network, it's a kind of interesting use case for AI. That to me seems like a pretty good, good one to Barbara.
- [21:34]
C
What about you? What do you think among those five mega cap names they're reporting, what's what stands out to you? Which one's your best?
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B
Well, you know, it's interesting what John says about Amazon because Amazon obviously got hurt in the last earnings where us was growing at a far lower rate than the competition. And so yes, they're doing well but the question is are they losing share and can they continue to gain share? Because I think that's really key even though the whole business won't inflate. So but Amazon strikes me as it's like Google, you know, Alphabet earlier this year, you know, it was really lagging, it was just not going to be a contender. So Amazon probably is not a bad bet in terms of the risk reward here. You know, Microsoft is also interesting. Apple has had a lot of hair on that but it's really proven it's going into a good cycle in the ecosystem. But I think Amazon probably because the risk reward I'd have to agree with John.
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C
All right, to Amazon's Tim, what do you think?
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A
Google to me again, we've taken away the doj. We've got a double digit search growth in a world where people I don't think are even pricing. A lot of that in Gemini 3 is coming out. We've got outperformance on YouTube in terms of ad acceleration. We have a dynamic even with Waymo and other parts of at least the, the Google valuation multiple that I think at least the street and you know, John and his colleagues may feel otherwise. In other words, I think there's a lot to the Google story that doesn't get into the valuation. But I think at 25 times 2712 bucks a share, this is a $300 stock easily. And I think there's less uncertainty. And again that's in a world where everyone had written them off in terms of the new age of search and any thoughts on that?
- [23:03]
F
Well, everyone clearly had written Google off. And the amazing thing about that is Google is the company where generative AI was essentially invented. So I think it was kind of the market got ahead of itself, viewing search as a loser in the generative AI landscape. That, by the way, may still end up being true. The question is going to be if that is true, do they have enough there to kind of overcompensate for that over time?
- [23:29]
C
That's a fascinating discussion for sure. So a lot of people focusing on these mega cap tech earnings today and tomorrow. John Belton Gabelli Funds, thank you very much. Please come back and see us again soon. Barbara, Tim will see you later on. Coming up on the show here, mortgage rates are dropping to the lowest level in more than a year. But it isn't today's rate cut that's important to where rates go from here. It's actually something else. We'll explain coming up next.
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C
All right. Welcome back to the Exchange. Mortgage rates are at the lowest level in over a year at this point. And while that's providing some homeowner relief on new savings, it does not seem to be moving the needle for potential home buyers. Diana Olek now joins us with the numbers. And what exactly is going to drive some of that home buying sentiment, Diana?
- [25:14]
B
Well, Dom, let's start with interest rates. Now, the average on the 30 year fixed dropped last week, as you said, to the lowest level since September, September of last year. That's on the Mortgage Bankers Association's weekly report. It moved even lower to start this week on a separate read from Mortgage News Daily. Now as a result, applications to refinance a home loan last week jumped 9% for the week and were a whopping 111% higher than the same week one year ago. That is correct. Rates were higher last year, but only by 43 basis points. When you compare that exact week, demand from home buyers moved up a little bit. But buyers have not been nearly impressed by these lower rates. Rates and you See that in the latest pending home sales index out this morning, sales in September were unchanged from August and dropped 0.9% year over year. According to the national association of Realtors. The street was looking for a 1% gain after a much larger gain in August. Now, this count is based on signed contracts. So people out shopping in September and making that decision when the average rate on the 30 year fixed was generally on the decline but had not dropped as much as as it did this month. So it was around 6.4, 6.5% versus today's around 6.1%. Inventory, though, has climbed to a five year high. Although still on the lean side, the Realtors chief economist Lawrence Yun noted in the release that a record high stock market and growing housing wealth in September are not enough to offset a likely softening job market. Dom?
- [26:38]
C
All right, Diana. Oh, look there with the latest on the jobs market. Thank you very much for that. We got the story. So let's talk about the action in some of those home names. Barbara, we'll start with actually you first on this because you're actually an investor in Home Depot, one of the first derivative plays on that housing market. Do you feel positive about housing sentiment right now and do you think it will continue?
- [27:00]
B
I'm not exactly positive and I own Home Depot, but it's underweight in the portfolios because I think it's really a question of timing. You know, as Diana was saying, you've got the inventories increasing, but affordability is still a real problem. You actually saw prices go up in important markets in the Northeast. And so even though rates are coming down, you're seeing a pickup in refi activity and applications for mortgage mortgages. The actual cash outflow per month for most people given the high prices is still a little bit high. And I also think there's a problem with consumer confidence, which has started really, I think with with the tariff uncertainty in April. And people are hearing oh, there's hard to get jobs even though, you know, the numbers are not showing that as yet. So I think there's still a lot of confidence issues with homebuyers and being very cautious. And it's really the ultimate price of the housing. So Home Depot, you know, I own and again have not put it to full weight in positions because I am not sure of the timing. And the Fed is starting an easing cycle. We'll get more color on that today, but I think it could take some time.
- [27:53]
C
Tim, what do you think?
- [27:54]
A
I think homebuilders have had this kind of ebb and flow based upon interest rate sensitivity. And I don't think you're going to get an interest rate sensitivity rally in homebuilders anymore. I think what we've heard out of Washington is there's a little bit of pressure on a supply side, you know, margin negative approach to, you know, homebuilders just build them. I think homebuilders have taken on a lot of the financing costs of new homes. I don't need to be in the homebuilder space. I think there are parts of the homebuilders and if you look at that, XHP homebuilders etf, I would be going to the infrastructure parts of the homebuilder space. I think things exposed to data center build out and H Vac. Those are interesting plays here to me. I don't think you need to change the homebuilders. We had an interesting guest last night from the Mortgage Bankers association economist saying he thinks interest rates, mortgage rates are probably sideways at 6% for the next couple of years. In that environment, I don't know that you see any more velocity to this current home market.
- [28:48]
C
All right, so a homebuilding industry looking for a catalyst, so to speak, at this point right now. All right, thank you guys very much for the homebuilders conversation. Now let's send it over to Courtney Reagan for a CNBC news update. Good afternoon, Courtney.
- [28:59]
B
Hi Don. Good to see you.
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C
We're.
- [29:00]
B
A federal trial is set to begin in Portland, Oregon today to decide whether President Trump can deploy the National Guard there. The city and state filed lawsuits against the Trump administration to block the deployment. The judge, a Trump appointee, has already issued two restraining orders delaying it. The head of the UN's nuclear watchdog agency tells the Associated Press that Iran does not appear to be actively enriching uranium, but that the agency has recently detected new movement at the country nuclear sites. That's where enriched nuclear material is said to be located. The agency has been using satellite imagery to monitor the sites but did sign an agreement with Iran last month that could pave the way for the resumption of in person inspections. And Uber says it will begin testing robotaxis in San Francisco soon and offer rides in new driverless vehicles next year. Uber sleet will use SUVs from Lucid Motors equipped with self driving tech from Neuro. The movement puts the company in direct competition with Alphabet's Waymo, which already operates in San Francisco. Tom, I'm just not there yet. Call me old fashioned.
- [29:59]
C
Back over to you, Courtney. I'm right there. With you. Thank you very much for that. Coming up on the show, we're 30 minutes away from the big Fed rate decision. Stocks are still gaining right now with Caterpillar, Nvidia and Verizon pushing the Dow higher. We're going to discuss more of the day's biggest movers when the exchange returns after the this break. All right. Welcome back to the Exchange. Gold prices rising today as investors await the Fed's big decision on rates but down nearly 3% this week overall. Tim, I'm going to turn to you first. You've been bullish on gold for quite some time now. A big fan of the mining stocks that are the ancillary play on the gold prices themselves. Are you sticking with that trade?
- [30:47]
A
Absolutely. This is a multi year trade. This is a trade that's as much about supply. I know we only think about central banks buying. It's an asset class story. It's miners. The free cash flow yields with gold at 4,000 are extraordinary. Those are not priced into these stocks. So I love it. I actually think it's very interesting time to find those miners also with exposure to copper fresh, you know, kind of big rally today. Look at the Southern Copper announcement yesterday. I mean their earnings were, were records. So I think copper, gold, copper hybrid, some industrial metals on top of the PGMs get your exposure and stay there.
- [31:18]
C
All right. So gold and PGMs aside, just a bigger broader question. Are you now do you feel as though, Barbara, investors are generally speaking over or under allocated to precious metals?
- [31:32]
B
Probably under, under allocated institutional investors, I think the retail investors have been all over gold and silver. But that's markets I think more momentum plays. But I think institutional investors have typically seen gold as a hedge against inflation, geopolitical uncertainty, etc. And I'm with Tim. I think there's actually real secular changes and I think it's the central bank buying that will continue to push up the price of gold. So I think there's maybe some reevaluation there, but I think it is underweight in general.
- [31:57]
C
And what do you think it could do you feel as though there's a market improvement for prices in the next 12 months?
- [32:02]
B
I do. I do. I think the way I'm playing it, I'm not playing the gold miners, I'm doing it through the gold, through the etf. So and I think and I started putting that in all my on my client portfolios earlier this year and in my own because I think that we'll just continue to climb higher with the understandable pullbacks.
- [32:17]
A
Lead time on a gold mine is seven to eight years. Everybody thinks you can just crank out more gold out of the ground. It's not happening.
- [32:22]
C
All right now the Fed is also meeting, not the only central bank, by the way, that's in focus this week here. The bank of Canada, the European Central bank, the bank of Japan. They're also set to meet on policy. The Nikkei actually closed at an all time high today. The Stoxx 600 in Europe is up 13% this year. So let's talk a little bit about that international play. I will start with you, Barbara, on this. The international side of things. Is it attractive and are there specific markets that you think are the ones poised to outperform?
- [32:52]
B
Yeah, well, in general I look at international markets or investing in them as trades, you know, maybe short, maybe a year or two or like for instance China, which was considered uninvestable for a while. Well, right now they seem to have in their moment in the sun. But I also consider it continuously at high risk given government potential for government sudden actions. You know, Europe had, has had a great run this year and part of that was again the defense spending, fiscal spending and a lot of things that were sort of short term or one time. They still have serious issues in terms of the structural challenges, you know, our country. I still remain overweight in the US And I always will be, just because unless things really change down the road. Because this idea of American exceptionalism I think is real and that's about innovation. It's our company. Earnings are higher, our margins are higher, we have flexibility in our workforce and that's going to continue. And of course we all know about this cycle and what the potential, the productivity increases we're going to see over the coming years is dramatic. So I think there's still a lot of money to be made in our market.
- [33:46]
C
Tim, you made a lot of your bones early on being a global investor. So where do you think the opportunities are now?
- [33:51]
A
IDEVO is an ETF I run right now. It's an international ETF and we're exposed to, to some of these themes. I mean, Japanese industrial companies I think look fascinating on valuation. I think Japanese companies are giving more capital back. The corporate government, it's all about relative improvement. European banks, European money center banks, if you think Citibank and JP Morgan have been good trades, you know, we've been in Barclays, we've been in Santander, you know, and I just think the international allocation, we're seeing this, we're seeing a Lot of inflow. The dynamic Here is U.S. investors are underway. International U.S. exceptionalism. I'm not here to challenge that. In fact, I would just say that there is an underweight US excuse me, there's an underweight international by US Investors, there's an underweight their own markets by foreign investors. And I think some of this, this really started back in Trump 1.0 where I think we went from like foreign investors went from kind of, you know, 18% to 25 to almost 30% U.S. i think some of that's coming back. I think international is a long term trade.
- [34:44]
C
All right, coming up on the show, a quarter point cut is more so baked in at this point. So many investors are sitting on their, setting their sights on the Fed balancing sheet action. So what the potential end of quantitative tightening might mean for the bond market. That story is coming up next. All right, welcome back. We are now just about 17 minutes and 22 seconds away from the Fed's big rate decision. Yields are holding steady with the 10 year just under 4% with the market already pricing in a quarter percentage point cut. My next guests are now focusing on the potential end of the quantitative tightening. So joining us now are Michael Schumacher, head of macro strategy over at Wells Fargo, and Ross Mayfield, investment strategist over at Baird. Thank you gentlemen both for being here. Michael, we're going to start with you. This is probably one of the more telegraphed rate moves that the Fed has seen and the markets are playing it that way as well. What exactly do we need to see or hear from the Fed later on today with regard to what the next steps are for Wall Street?
- [35:47]
F
Yeah, Dom, it is telegraphed. I agree with that.
- [35:49]
A
And it's not simply because you've got.
- [35:52]
F
This move just about baked in. But there's been effectively no economic data for the last month.
- [35:56]
A
So nothing really to change the Fed's mind in terms of the path. What people are focused on is the balance sheet. Is Powell, is the Fed going to announce that today is the day the Fed stops running it down? Probably not, but it may actually do it for forward start.
- [36:11]
F
So it might do this for December.
- [36:13]
A
1St or something like that. I think the big surprise to the.
- [36:16]
F
Markets would be if the Fed said.
- [36:17]
A
No, no, we're good, we'll just let the balance sheet run down a bit more and we'll evaluate next meeting.
- [36:22]
C
That would be a shock, Mike. Michael, we've spoken now for a decade and a half about rates. And every time we come to you about questions on rates, you give us these very simple and simplistic answers that kind of clarify things for us. So for our viewers out there, what exactly is the most important, important thing for rates in the next, say, six to 12 months?
- [36:44]
F
I think probably the most important thing for rates is really, I'm going to say two things and not just one.
- [36:48]
A
But number one is what's the evolution of all the tariff discussion? The tariff hit on the US Economy has been less than I expected, less than a lot of people expected.
- [36:58]
F
If we go back to April 2nd.
- [37:00]
A
Liberation Day, and say, would the US economy, would we have expected it to be in the this great shape? Probably not.
- [37:06]
F
So does that continue or is the.
- [37:08]
A
Tariff it simply delayed? That's the first thing. And secondly, how do people at the central banks like the Fed react? So right now, I'll give you an example. The market expects the Fed to ease about 100 basis points more, putting the funds rate down to about 3%. Does Powell endorse that idea today? Does the Fed really follow through in the next few months? These are the big things people, in a way need to weigh over the next call. It's six to 12 months.
- [37:31]
C
All right, Ross, from an equities perspective, how much is the rate picture necessary for the next leg, hypothetically higher in the marketplace?
- [37:42]
A
Look, I think it's a leg that the bull market stands on, but it's not the main one. Right. We know the AI trade is primarily fueling this. Now, there is a lot of easing baked into the market. So I think on one hand, you know, the idea of lower interest rates sparking some of the cyclical corners of the market, the housing trade, for instance, is important, but it's also baked into the market. I mean, we look at Fed fund futures, and again, yeah, 100, 125 basis points more of easing, plus the end of Kutty, which is more, you know, easing of financial conditions. So it's clearly a big part of this. You know, we don't have a lot of data points, but Fed rate cuts plus no recession has been a very potent mix throughout history. And I think we're sitting there today, but it's, it's far second to AI and the developments on the front of the Mag 7 and some of the other players in that space.
- [38:32]
C
And Ross, how important is that balance sheet policy or clarification on policy going to be for those equity markets?
- [38:40]
A
Maybe, maybe important on the margins. I do think, you know, if power were to come out and surprise the market by saying that we're just going to keep letting the balance sheet run and continue Quantitative tightening into perpetuity. I think it might be a bit of a shock to equity markets. We've seen some stress in short term funding markets. I think that's actually the impetus for Powell to maybe pull this, this cut and forward into today. But if we're looking out long term as to what matters, I think in addition to tariffs and to how the Federal Reserve reaction function works, we're looking at inflation. I mean, we've seen inflation come down, but we've also seen inflation X shelter start to tick up month over month for the last several months. So, so there's this stickiness to inflation that I think will probably keep the Fed from cutting anywhere past their neutral rate. And I think so then you start to think about 2027. Where does the Fed end up? And that's a much more interesting, I think, thought experiment because 2026 I think is fairly well laid out by the Fed.
- [39:36]
C
All right, Michael Schumacher, Wells Fargo, Ross Mayfield, A Baird, thank you guys very much for that. Coming up on the show, energy, tech and industrials are leading the way ahead of the Fed decision in just about 2012 minutes and 45 seconds. Real estate and Staples are the laggards. The exchange is back after this. Welcome back. 9 minutes, 45 seconds away from the bid Fed rate decision. Let's get some final thoughts. And Barbara, we're going to start with you here. What exactly would you be watching for mostly from the press conference at this.
- [40:08]
B
Point for the Fed? Well, we obviously want to hear what he's thinking for the future. You know, Everybody's expecting the 25 bip cut, but we'll see what he thinks in terms of December and what he thinks in terms of inflation and labor. Those are the two key things. And so lots going to key off that in terms of, of where we go. I think for now the AI play is strong. You've got huge consumer spending, some 40 to 50 trillion and wealth has been created since 2019. So next year looks good. So I'm not even so sure we need to have clarity on how many rate cuts for next year given because I think earnings look very strong and the guidance has been very strong.
- [40:41]
C
Tim, what do you think?
- [40:41]
A
Well, I think the lack of clarity gives the Fed an ability. I mean, Powell could actually really punt on December language and it doesn't mean he won't give some guide. But I my inclination is if you've got a 90% priced in on December, I think there's the risk that you could be disappointing people. I think over the next couple of days. I think bond markets and rates could give a little something back. I think we've priced a lot of this in and you know as stated earlier, I'm generally very constructive on the market here. Year we've had a 15% move in the S and P since the other side of the V. In other words we've had a massive move in markets and we've priced a ton of Fed and not just a little. Don't fight the Fed. I think this Fed, at least that's intact for the next six months or more is going to follow the course they have. They don't have to go in December but if anything I think just watch for more caution out of December.
- [41:29]
C
The last few moments, just a few seconds left. Your favorite part of the market right.
- [41:32]
A
Now, I tell you it's not a big weighting but I really like what's going on in commodities. I like what's going on in integrated miners. Again I talked about copper. I think industrial metals. I think the defense spend build out around the world whether it's Japan or Europe, I kind of like that part of the market. Industrials have led the S and P all year.
- [41:51]
C
Barbara, what do you think?
- [41:51]
B
Still the chips, you know in video, Broadcom, tcm, tsm.
- [41:57]
C
So okay, so heading to the Fed. Thank you guys both very much for breaking down all with us right now. Barbara and also Tim Seymour, thank you very much for that. Now that does it for the exchange. We're just a few minutes away from that big Fed rate decision. I'm going to see you on the other side of this break on Power Lunch for the entire Fed breakdown. Keep it right here. We'll see you after that. All right. Welcome to Power Lunch. I'm Dominic Chiuin for Brian Sul Sullivan Today we are just about, I'll call it less than five minutes away until that very key Fed rate decision. We're going to bring you that decision, the market reaction and what it all means for your money straight ahead. But first let's get a check on the market's all time highs for each of the major indices out there. The S and P is up a quarter percent. Fractional gains for the NASDAQ composite, the dow industrials, the NASDAQ 100 large cap index as well. Right now let's get right to our all star panel as we get just closer and closer to that big Fed rate decision. Joining us now are Jim Caron of Morgan Stanley Investment Management, David Kelly of JP Morgan Asset Management, also Francis Donald of RBC Capital Markets. Again all Star panel to break all of this down. Let's first though, get out, maybe have the conversation a little bit first about what's happening overall for that big rate decision coming up. We're going to get out to Steve Liesman actually stay right, we're going to stay right here. We'll get to him in just a moment. He's in lockup right now. So David, we're going to start with you. Yep. This is perhaps one of the more telegraphed, if you will, rate decisions that we've had in recent memory. Is there anything that we're going to expect that could change the narrative one way or the other based upon not just the decision, but what we hear from Jerome Powell in 30 minutes after that decision comes out?
- [43:46]
A
I think, I think on the rate cut itself and on the prospects, it is pretty much telegraphed to markets. But I think the interesting issue is going to be quantitative tightening. We've seen, we've seen some spike up in short term rates. They've been gradually reducing their balance sheet. I think they're going to come to an end to that. I put an end to that because they don't want to cause volatility in short term markets. So I think that's the first thing. And then it'll be really interesting, the press conference to see just how far the Fed is telegraphing rate cuts. Will are they really slowly coming down to neutral or they're going to stop short of that? If the economy is looking fairly strong.
- [44:17]
C
Do you think that it would be in their best interest to do that or do you think that they want to keep things in more of a wait and see to provide that optionality when and if data actually starts coming out again?
- [44:27]
A
If I were in their shoes, honestly, I wouldn't cut it all. And the reason is I think the economy is doing okay, but these markets are bubbly and that you've got a lot of, you know, animal spirits running, running rampant here. And you know, there's, when you go to the zoo, they say don't feed the animals. The Federal Reserve shouldn't feed the animals here. I think they should not feed these animal spirits markets at this point because the market has got a lot of euphoria in it.
- [44:50]
C
Jim, are we feeding the animals or not? Well, look, I like to differentiate between the market and the economy. The economy is not the market. The market's not the economy. So when I think about this, I think about the jobs market and what I'm going to be looking for in this decision in the commentary from The Fed is how are they assessing the data, what private sector data are they looking at or what other indicators are they seeing? Because ultimately what it means to me and what I think it means to the Fed is if the labor market is slowing or non dynamic, then what we need to see is further rate cuts. Yes, I know that the inflation is above target right now, but as long as the unemployment rate is is likely to rise and by the way, I think the unemployment rate is truly closer to 5% than the 4.3% that we last got based on some of the private market surveys. So I think the Fed is very wary about that and that probably puts a couple of more rate cuts in front of them all right Now Francis, if we turn towards you, there have been allusions now from both of our guests here on the panel with regard to kind of what other data points might be at play from your standpoint, what would you, what were you looking at over the course of the last few weeks? In the absence of any official government data coming out ex the CPI print, we got last week.
- [46:05]
B
Quantitative data from the private sector and also some qualitative data from the Beige book. But that's exactly what I want to hear from Powell today is we have a sense of what their decision making function is, but what are they going to be reacting to because this isn't just about one month of lost data. We're going to have several months here where the data is going to be very skewed, very difficult to get a core read, especially on the inflation side that's really hard to look backwards on and tell us where we were three months ago. So I want to hear from Powell today. This is what we're going to be looking at, not just how we're going to be reacting to the economy ahead.
- [46:36]
C
Now Francis, one quick point here before we get to that decision. From a data standpoint, do you feel constructive about what the economy is doing right now as we head into this print?
- [46:47]
B
No. This is a what we call stagflation light type of environment. It is growth below comfort level and it is certainly inflation above comfort level. I don't know what the Fed's trying to achieve with these rate cuts here. Maybe not being as restrictive, but a lot of the job weakness that we've seen is that low hiring, low firing results from a trade shock that's coming through. I'm not sure that these rate cuts that we're seeing from the Fed is going to cure what ails the American economy. A sapphire reserve story from David Chang.
- [47:15]
D
So I was at a Chase Sapphire lounge and I saw a burger on the menu. I took a bite and I was blown away. Took another bite and I was like, whoa, this is really special. And I couldn't figure out why.
- [47:24]
A
Was it the bun?
- [47:25]
D
Was it the sauce?
- [47:26]
B
The blend of meat?
- [47:27]
D
I want to find delicious things in places where you would never think it was going to be. I would do a layover for that burger.
- [47:33]
B
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