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Is it Finally Time for a Rate Cut?: Market Commentary from Cabana’s CEO – June 21, 2024

3 weeks ago

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We are starting to see some weaker economic data trickle in – a surprise drop in inflation data and higher jobless claims last week. This week we saw weaker than expected consumer spending (finally) and elevated jobless claims again. While we are still at historic lows in unemployment, claims are increasing. All this means the Fed (the Federal Reserve) is more likely to begin cutting rates at some point this year. Mid-week, I saw that the bond market was pricing in a 62% chance of a first cut in September.  

This coincides with a continued drop in bond yields, The 10-Year Treasury is now below 4.3%, all the way down from the 4.7% area one month ago. This is good news for mortgage rates, which have dropped below 7% on the 30-year mortgage. Homebuyers are responding and mortgage applications jumped over the past week. So, all in all, continued progress toward the much talked about soft landing. Next week we will get the PCE inflation number. This is the Fed’s preferred measure, and a soft number may just establish the “trend” they are looking for. Chairman Powell has stated over and over that they want to see a sustainable trend before pulling the trigger. Could we be at that point? 

As a final thought, I have to point out the incredible performance of “big tech” compared to everything else. The AI phenomena rolls on to the benefit of NVIDIA, Super Micro Computer and pretty much everything else in the technology space. The Nasdaq 100 (QQQ) is up 20% year to date, while the Dow (DIA) is up 4%.  I have enjoyed being overweight technology in our portfolios but the disparity between that one segment of the economy and everything else is not sustainable, in my opinion. I feel like something has to give, and I hope it is some much-needed rotation by investors into other sectors that represent the broader economy. The alternative is tech finally hitting the exhaustion point and pulling everything else down with it as we saw in the 2000-2003 bear market. Let’s hope it is the former and a rate cut will likely help. 

At Cabana, we are bullish and allocated accordingly across our portfolios. 

Terms to know:  

  • A soft landing is a cyclical slowdown in economic growth that ends without a period of outright recession.  
  • Personal consumption expenditures (PCE), also known as consumer spending, is a measure of the spending on goods and services by people of the United States. 
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January 17, 2024

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The Nasdaq Composite Index is a market-weight capitalization index that covers more than 3,000 stocks listed on the Nasdaq Stock Market. What is the Nasdaq Composite, and What Companies are in It? | Nasdaq