Last Friday, stock markets shook off the previous day's panic when two Fed members supported a rate cut. Instead of waiting for Fed Chair Powell to comment, investors and algorithmic trading systems jumped on the headline.
New York Fed president John Williams said that the central bank has room for a further adjustment “in the near term to the target range.” Markets are defined near-term as next month (December). In the last meeting, the Fed chair said that rate cuts were hardly guaranteed. Williams’ comment contradicts that.
Williams blamed tariffs for delaying the Fed from reaching a 2% inflation goal. He believed that tariffs added a meaningful 0.5% to 0.75% to inflation. Bond markets believe the Fed will cut rates. The 7-10 Year Treasury Bond ETF (IEF) gained 0.78% last week. The 20+ Year Treasury Bond (TLT) added 0.71%.
Bank stocks like JPMorgan Chase (JPM) fell 7.52% from a 52-week high. When markets expect an economic slowdown and lower rates, they are pricing in fewer transaction volumes for banks. Fintech is faring poorly, too. PayPal Holdings (PYPL) lost 13.05% in the last month, while Block (XYZ) lost 20%.
Lending firms like Affirm (AFRM) lost 15% in the month, compared to a 28.8% drop for Upstart (UPST). Markets believe that consumers will have trouble paying back their debt.
