Are rate cuts here to stay?

Hey Superheroes,

Let’s dive into this week’s big story and see what it means for your portfolio.

The Fed went through with their bigger than expected rate cut – but was it too much, too soon?

💥 The big news

In a move that’s got everyone talking, the US Federal Reserve just slashed its benchmark rate by a whopping half a percentage point. This isn’t your average trim – it’s the Fed’s boldest cut since Covid.

🏃‍♂️ Wall Street’s wild ride

Wall Street had been on a bit of a hot streak leading up to this announcement with the market climbing for seven straight sessions and up almost 5% since the 6th of September. 

🔮 What’s Powell seeing that we’re not?

Fed Chair Jerome Powell seemed pretty confident about this move. He’s talking about “growing confidence” and “recalibrating” policy. But here’s what’s got market watchers scratching their heads:

• Looks like inflation is sticky. That ‘supercore’ measure the Fed’s so obsessed with? It’s stubbornly hanging out around 4.5%.
• The US economy’s still chugging along at a solid 3% growth rate

🤨 Preemptive or Premature?

Powell’s using his press conference to paint this as a pre-emptive strike. The US job market is showing signs of softening and the Fed wants to make sure it doesn’t turn into a full-blown slump. But is this a case of better safe than sorry, or jumping the gun?

⚠️ While Powell tries to reassure us, history tells a different story…

Before you get too excited about this rate cut, let’s take a quick history lesson:

• Of the past 12 rate-cutting cycles, 8 ended in a hard landing (yikes!)
• In the 200 days following the first cut, equities typically decline by 23% on average

Powell’s trying to reassure us it’s all under control but history suggests we might want to keep our seatbelts fastened.

🔥 Inflation 2.0: The sequel nobody asked for

Some market watchers are raising red flags about a potential inflation comeback. Peter Berezin from BCA Research is giving Powell’s soft landing the side-eye, warning we could be in for an even bumpier ride down the road. It’s like trying to get the perfect shower temperature with a wonky dial – the Fed might crank it too hot or too cold. While Powell’s made it clear we won’t be seeing ultra-low rates again anytime soon, Wall Street big shot Howard Marks says we should focus on the big picture. Bank of America’s calling it a shift from a 2% world to a 5% world, thanks to a perfect storm of fading globalisation, ageing populations and surging energy demand (looking at you, AI). 

🔦 Some other things we’re shining the Spotlight on:

• AUSSIE JOB MARKET FLEXING: Talk about a surprise! Australian employment jumped by 47,500 in August, smashing forecasts of 25,000. The unemployment rate held steady at 4.2%. Looks like the RBA’s got its work cut out keeping this jobs juggernaut in check while battling inflation!
• TUPPERWARE’S PARTY’S OVER: Remember those iconic plastic containers? Well, Tupperware’s filed for Chapter 11 bankruptcy. From 1950s housewife must-have to financial meltdown – blame it on changing times, inflation and maybe our newfound love for takeout. Pour one out for your grandma’s favourite kitchen brand!
• RIO TINTO GOES GREEN(ER): Mining giant Rio Tinto’s newest venture? Playing farmer! They’ve snapped up 3,000 hectares near Townsville to grow 750,000 pongamia trees. The endgame? Turning tree seeds into carbon-neutral diesel for their trucks. Who knew going green could be so… leafy?

Keep an eye on how these stories develop, Superheroes. And don’t forget to follow us on Instagram @superheroau for the latest market updates!