The Weekend Edition is pulled from the daily Stansberry Digest. The Bond Market Isn't Buying the Death of Inflation By Corey McLaughlin The "juice" hit this week... After the Federal Reserve announced its first interest-rate cut since 2020 on Wednesday (with a promise of more to come), the markets oozed with optimism – or greed, depending on your point of view. All the major U.S. indexes closed at least 1% higher the next day. The benchmark S&P 500 Index hit new all-time highs. So did the Dow Jones Industrial Average. The tech-heavy Nasdaq Composite Index was the outperformer, closing 2.5% higher. Meanwhile, artificial-intelligence darling Nvidia (NVDA) was up roughly 4%. Clearly, Wall Street investors liked what they heard. I even heard one Wall Street veteran say "the Fed is with us" on Bloomberg Radio. The Fed cut its federal-funds target by 50 basis points, or half a percentage point. That brings the new range to between 4.75% and 5%. And Fed Chair Jerome Powell sounds like he's intent on "juicing" the economy with monetary policy now, in the months ahead, and likely beyond. The Fed's concern has gone from high inflation to... something else... "The U.S. economy is basically fine," Powell claimed during Wednesday afternoon's press conference. Yet, he also said people should take the Fed's 50-basis-point cut "as a sign of our commitment not to get behind" the trend of a weakening jobs market. Powell doesn't know (or wasn't willing to share) the interest-rate level the Fed will ultimately cut to. Yet he did offer something to keep in mind over the long term: "The actual things that we do will depend on how the economy evolves." I would urge everyone to write down that statement if you're interested in what the Fed might do next, at least while Powell is still the chair. I say that because Powell's tenure may depend on who wins November's presidential election. Still, no matter who is in charge, we need to understand the bigger picture. That is, the central bank is a reactionary body using months-old, backward-looking data to make decisions... That's why the market might be in for bigger surprises ahead... What if inflation isn't conquered, as the Fed is suggesting? Personally, I'm skeptical that it is. And it looks like the bond market is, too. The Fed's central bankers published their quarterly projections on Wednesday... Each of the 19 central bankers in the room for the Fed's two-day policy meeting projected multiple rate cuts by the end of the year. They also expect to green-light another easing of 1% in the fed-funds rate next year. The Fed's quarterly projections are just about always wrong. But most people like to believe they're worth something. The bond market wasn't buying it, though... While shorter-term bond yields, which tend to track Fed policy, were lower, longer-term bond yields rose. The 10-year Treasury moved above 3.7%, and the 30-year Treasury rose above 4% – despite the Fed saying many more cuts are planned. As our Ten Stock Trader editor Greg Diamond wrote to his subscribers on Thursday... This indicates that the Fed has made a mistake that the bond market is getting ahead of. Most likely, bond investors don't believe that inflation will go back down to the Fed's 2% target anytime soon. The U.S. dollar is also holding firm despite a cut in the world's reserve currency. As I mentioned [on Wednesday], this has all the makings of a "sell the news" event. Volatility isn't going anywhere, so get ready for a lot of trading. This is something to watch. A reignition of high(er) inflation would upset most expectations from the investing crowd – not to mention Americans' budgets. But remember, stocks, bought at reasonable valuations, are great inflation protection in the long term. For now, the primary market story is the overwhelmingly bullish reaction to Wednesday's "first cut"... and the promise of more. Gold was popular after the announcement, too – for good reason... Rate cuts are intended to juice the economy, and they lead to more inflation... which means more value for "real assets" like gold. As a result, gold has risen to a new all-time high above $2,600. Gold is up 25% in 2024 and is in a strong uptrend above its 50-day and 200-day moving averages. As I wrote in the Stansberry Digest last month, the long-term technical setup for gold looks good. And it has at least three major fundamental catalysts going for it... 1. The threat of escalating war in the Middle East and the ongoing war between Russia and Ukraine. Simply put, more developments in these wars could lead to further "shocks" for stocks and send investors into "safe haven" assets like gold or bonds. 2. It looks like the Federal Reserve is comfortable returning to "business as usual" and will [continue to] lower interest rates. This isn't that long after the economy endured a 40-year-high rate of inflation (and still-rising prices). Cheaper dollars means rising prices for dollar-denominated assets... like gold. Other central banks are also buying gold as a way to hedge against the dollar... to the tune of more than 1,000 tonnes in each of the past two years. 3. Campaign promises from the U.S. presidential candidates to "fight" inflation. We've seen this story before... The proposed policies, in one way or another, will only exacerbate U.S. debt and inflation, and certainly won't get to the root of the problem: fiat currency and money printing. But in the short term, futures traders' sentiment on gold has now reached extremely bullish levels, as Brett Eversole shared this week here in DailyWealth. This is often a strong contrarian signal. And it's a sign to be cautious on gold for now, at least when it comes to putting new money to work. Elsewhere, if "digital gold" is your preference... Bitcoin was up more than 5% between Wednesday and Thursday. It has been on a run of roughly 20% gains in the past two weeks. But the technical picture for bitcoin doesn't look nearly as strong as gold's right now, as DailyWealth Trader editor Chris Igou wrote on Thursday... You see, bitcoin has entered a series of lower lows and lower highs. This downward channel has been consistent over the past six months. And in August, it caused bitcoin to fall below its 200-day moving average (200-DMA). This trend line acted as "support" in July. But when bitcoin fell below the 200-DMA in August, the trend line turned into "resistance"... sending the cryptocurrency lower again. Check it out... The downward channel has been consistent for six months. That shows it's strong. And it's likely to continue now that the 200-DMA is acting as resistance. Chris said that if bitcoin turns lower from this "resistance" level, it could fall to lower lows near $50,000. Alternatively, if the rate-cut buzz pushes bitcoin above its previous high in August, the long-term trend would be bullish again. You might be sensing a theme here... While Mr. Market appears ginned up on a fresh round of juice, several of our editors are advising caution in various market sectors. That's not to say it's time to run for the exits. But remember, the Fed is cutting rates because it sees economic weakness. And with the major U.S. indexes near new highs, that may not be priced into the market yet. Don't forget – our friend Marc Chaikin has been tracking this story... Marc is the founder of our corporate affiliate Chaikin Analytics. And he has put together a new presentation to share what the Fed's decision will mean for the markets. In short, he says there's a "dark side" to rate cuts that most people don't understand. But he explained it all on Thursday night. Marc shared his take on the Fed, plus what he recommends you do with your portfolio to prepare for what's next. To hear Marc's view of what the market has in store next, watch the video here. Good investing, Corey McLaughlin Editor's note: If the mainstream headlines scared you out of the market when volatility kicked in this year, you might be making a serious mistake... In his brand-new presentation, Marc unveiled the tool he's using to break down the market into 21 individual sectors. And he says picking the right sector right now could make or break your wealth. Plus, Marc also revealed his No. 1 stock to buy... and his No. 1 stock to avoid in the wake of this summer's tech sell-off. Get the full story here. Tell us what you think of this content
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