Business Rundown: Market Rally Continues, President-Elect Prepares For Fresh Inflation Fight
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I'm Lydia Hu, and this is the Fox Business Rundown. Monday, November 11th, 2024. I'm Lydia Hu. The markets are kicking into high gear, trading on the Trump win, as many American consumers may now be looking to the president-elect to fix financial woes. We're kind of in a dangerous place here, because to your point, inflation has become very stubborn here. The Fed said that they were going to change their monetary policy when inflation got to 2%.

Well, it hasn't gotten there yet and they've already been cutting rates now twice. Both the Dow and the S&P 500 closed out their best week of 2024. Investors are optimistic after a decisive Trump victory last week, along with a quarter point rate cut from the Federal Reserve. Wall Street is trading on the expectations of a pro-growth environment under a second Trump administration that plans to slash corporate taxes and deregulate.

Meanwhile, Americans who voted with their pocketbooks are watching closely for the president-elect's first move in office. Fox News voter analysis found nearly two-thirds of Americans have a negative outlook on the current state of the nation's economy, and two-thirds of Americans surveyed are very concerned about the cost of food and groceries. So how will the approaching Trump administration tackle the sticky issue, inflation?

And while Trump has plans for extending his 2017 tax cuts, economists warn that a plan for addressing the national debt is critical, too. We'll get to all of that later. But to start, we'll take a look at the market boom on the Trump trade in which sectors investors are focusing on in the wake of a GOP victory in the White House, Senate and possibly the House. You know, it's such an interesting.

It's an interesting place to be here on November 11th because as you know, just one week ago, we certainly weren't sure who was going to be our next president, right?

But as we sit here now, of course, you know, it's going to be Donald Trump who's returning to the White House. But what we also didn't know a week ago was whether we would know the answer to that question today. But we got the answer so quickly and decisively and clearly for those that stayed up and watched the election coverage. You knew by the early morning hours of Wednesday. Right.

When we bring that back to the market conversations, you know, we obviously have this incredible rally happening now. The Dow crossed 44,000 for the first time. S&P crossed 6,000 for the first time last week. So it seems there's like a lot of optimism happening. I'm curious to know from you, do you think that this optimism from investors, is this encouraged specifically by Trump returning to the White House?

Or is this more about kind of clarity and decisiveness, which we weren't sure we were going to have?

Yeah, no, that's a great point. I think it's a little bit of both. Ryan Payne is president of Payne Capital Management. Actually, I was extremely bullish before the election, not because I could predict the election. My crystal ball broke like many years ago. So I'm definitely not sure it's going to be Trump who won. But, you know, I always look at after an election, typically markets do well because of clarity. And that's what markets were really, really craving was clarity. And I think it's exactly what you got. And then on top of that,

Let's face it, Trump has very stimulative policies that he's talking about, at least, whether it's lowering taxes for individuals, lowering taxes for corporations, which is all very, very stimulative, and maybe potentially putting some tariffs on some of our neighbors, which is also inflationary. So I think the market's telling you both, right? We're looking at probably economic growth that's going to heat up because of tax breaks. But in addition to that, we're also seeing the bond market or yields move up

which is suggesting that we may have more inflation as well, that that deficit spending is not going away. And let's face it, Trump has called himself the king of debt

That's not really heartwarming when you're trying to reel the deficit in. So I think you're seeing a little bit of both. We're seeing maybe faster growth rates, but also you've got to keep an eye on the fact that inflationary pressure may return here, even though it's been coming down over the course of the last year or two. Yeah, I want to circle back to that topic of inflationary pressure and also tackling the debt and the deficit in just a moment. But before we get there, let's just focus on the markets a little bit more because I

Where we have rapid rise, of course, when a lot of optimism, you know, I have to ask, too, are there any concerns that you have about maybe some volatility or a possible pullback? You know, I can't help but think about Warren Buffett and all of this. Right. You know, increasing his cash holdings. Is there any part of you that worries about what what might come ahead after this this this this bull market right now?

Oh, yeah. The contrarian in me, there's a famous line from Sir John Templeton. He's a famous investor that says, bull markets are born on pessimism. They grow on skepticism. And I think the last two years, it was really, everyone was skeptical. I was like one of the lone bulls.

on the economy and the market for a long time. It was a lonely place to be. They mature on optimism. And I think you hit the nail on the head. Now, all of a sudden, everyone's like magically very optimistic. A lot of these strategists, we won't mention names, they're extremely negative for the last two years.

That's right. We're all of a sudden extremely bullish on the markets. I feel like it's a more crowded room to be in. And markets tend to die on euphoria. And so I think we are kind of at this bridge where we're going from optimism to somewhere near euphoria. And I think you're seeing that now, like with Bitcoin hitting an all-time record high. I'm still trying to figure out what we use Bitcoin for unless it's for

you know, maybe ransom, illicit finance, funding terrorism. But other than that, besides a lot of like millennial dudes and Gen Zers gambling in it, it doesn't really have a real intrinsic value. So I think you are starting to see more speculative type of investing coming to the market. And that definitely does concern me. Yeah. I mean, just to...

hit that Bitcoin point. You know, we're taping this at around 11 o'clock on Monday, the 11th. And just this morning, Bitcoin crossed an all-time high, $83,000. And of course, it's coming because why? You know, President Trump, President-elect Trump says he is pro-crypto now. You know, he says that he would put

You know, the U.S. kind of at the center of the digital asset industry. But it sounds like you're a little bit skeptical about about what that really means there, Ryan. It's kind of like, OK, OK, why? Right. It's like, again, we're not using it. Like how many times you use Bitcoin in the last week? I'm curious.

Good point. Well taken. Well, you know, a lot of the enthusiasts, a lot of the crypto folks out there are really excited about Trump's attacks on Gary Gensler. So we'll see what type of infrastructure he builds around this, including what's possible, a strategic Bitcoin stockpile. So we shall see. So, I mean, with that said, you know, with this concern that we're maybe approaching euphoria, where where are you looking in the market right now to put money?

Yeah, no, I'm glad you asked. No, I think bottom line is I think, look, the economy is definitely probably going to pick up speed, right? We're talking about lower regulation, lower taxes. Obviously, markets love that. Businesses love that. I'm a small business. I love to hear about lower taxes and less regulation. So anything that's tied or tethered to the economy, we call them cyclicals.

So if the cycle is actually going up in the economy, then you want to own sectors like industrials, materials, consumer discretionary, people are going to have money to spend. Financials should do really well because there's going to be more credit being used. Also, because longer term yields are going up and the Fed's cutting shorter term interest rates, that's what you call a more normal yield curve. That's very good for banks because they tend to

borrow short term and lend longer term. So all that really works well for the banks. And you've already seen the move a lot, like 12% in the last week, we've seen huge moves in the bank, but they still trade relatively cheap versus the S&P 500 or AI or technology where a lot of money is still being funneled to. But I would argue if we're going to have more growth,

and presumably more inflation, you know, a lot of what's worked lately, like the hot magnificent seven trade, which is basically the S and P 500. It's like 32% of the entire index. Now. Um, I always say the S and P 500, it's just an AI index and drag. Um,

You know, that doesn't do as well in inflationary times. Like in 2022, markets were down between 20 and 30 percent, specifically technology related sectors when inflation was up to 9 percent. So I think diversifying away from that, owning cyclicals in your portfolio, small caps, they're tethered to the economy more so than large caps, especially the domestic economy. They should do well. They've already started to move.

And also the dollar could be weaker if deficit spending isn't reeled in. It's good to have some international assets in your portfolio as well. Emerging markets are growing much faster than the US, trade a lot cheaper, and you're getting some really nice dividends there too. So lots of places to put your capital, but not the obvious place, like just plowing it into the S&P 500, like many investors are.

This is Jimmy Fallon inviting you to join me for Fox Across America, where we'll discuss every single one of the Democrats' dumb ideas. Just kidding. It's only a three-hour show. Listen live at noon Eastern or get the podcast at foxacrossamerica.com. Let's talk about inflation. You've mentioned it a couple of times because I think that we're entering kind of an interesting period.

an interesting fight on, on inflation, right? You know, we just got a rate cut from the fed just last week since they started their rate cut cycle back in September. And,

And the reason why I think it's interesting is because our inflation, we're still above the target rate of 2%. Yes. Currently 2.4%. The last read I thought was interesting because that was the first time that we had seen an acceleration in core inflation, I believe. Yeah.

Since March, I have to go back to my reporting notes from several weeks ago, but it had been the first time that we had seen an acceleration in core inflation in quite some time, which should raise at least a flag. And now, you know, we just got another rate cut. We'll get another decision next month.

But now as we're transitioning to a new presidency, the fight on inflation becomes now it's no longer going to be Biden's. It's going to be President Trump's. You know, you've mentioned some of the groundwork that's at play here. And there's also a relationship between Biden.

President Trump and Jerome Powell, which hasn't been so rosy. You know, I mean, Powell was just asked to comment on whether or not he would leave his post if Trump asked him to. And he very clearly said no, that the law would not require it. The Wall Street Journal today says they have a headline that says that if Trump tries to fire Powell, Fed chair is ready for a legal fight. With all of that kind of at play here, where do you see

this fight on inflation, which has proven to be such a political killer for the Democrats. Where do you see that going and us getting back to 2%? Yeah, Lydia, no, I think they're all great stats. And I think it suggests we're kind of in a dangerous place here because to your point, inflation has become very stubborn here. The Fed said that they were going to change their monetary policy when inflation got to 2%. Well, it hasn't gotten there yet. And they've already been cutting rates now twice. And

So I think the question becomes here to your point, like, okay, if the longer term treasury market is telling you inflation expectations are going up, the economy is clearly heating up here. The stock market's heating up here. The Fed typically cuts interest rates when the economy is slowing down.

And ironically, when the Fed had that big, massive 50 basis point or half a percentage point cut back in September, ever since then, longer term interest rates have been rising, which suggests that the Fed could be inadvertently overheating the economy by cutting interest rates so aggressively right now. I think it's a huge problem. And I think the Fed here.

is making the wrong decision. And I think they may look back or we may look back retrospectively and say, that was a bad move. So I think, again, you've got to protect your portfolio from inflation. You just have fiscal stimulus issues.

monetary stimulus happening at the same time while the economy is doing well. That's kind of unprecedented. And I think it is. We have a huge risk of overheating the economy. I think the Fed here, maybe it's politicized. I don't know why they're cutting as aggressively as they are. It doesn't make sense to me. And then also we have some of Trump's policies, which is a large part of why the markets are rallying right now, right? Tax cuts and people are hoping for tax cuts on tips and

cuts on taxes on Social Security, the possibility of tariffs. There's some disagreement about whether these types of policies are inflationary. Do you have a perspective on any of that? Are these cutting taxes and putting more money in the pocketbooks of folks, imposing tariffs on some of our foreign, on our adversaries? Is any of that a possible...

I guess, vulnerability when it comes to fighting inflation in your eye. Yeah, I think it all is, right? I think that's, I mean, look, it comes with greater growth, but when you have higher growth, you tend to have higher inflation. You know, and look, we don't know what's really going to happen with tariffs. I think some of that's a negotiating ploy. Donald Trump did write The Art of the Deal.

Right. So yeah, I don't know where those tariffs are going to stand is going to be 60% on China, 20% on all other companies. I don't know, probably somewhere in the middle. Um, but that also does increase costs to the American consumer. In addition to that, if the spending continues, you have tax cuts.

but you have nowhere where you're offsetting those tax cuts. I mean, I think GDP growth could accelerate here, but it's going to be enough to cover the deficit. I doubt that. Um, again, that translates into a weaker dollar hiring, higher borrowing costs and all of that is definitely inflationary. So I think that's the biggest fear here. Uh,

And I think that's a real concern. And the bond market is telling you that, right, that the 10-year treasury at 4.3 percent from a low of close to like 3.6 percent just a couple of weeks ago, you know, tells you this is a major concern and you've got to allocate your portfolio accordingly. So are you saying that you think the Fed should just pause next meeting next month?

don't screw it up. You have a soft landing. You made it happen. Why are we cutting rates if the economy with higher rates has done perfectly fine? So I think they're really probably not on purpose, but they may mess up the balance here for sure. Ryan Payne, thank you so much for joining us on this Monday. This was such a great conversation. Thank you. My pleasure, Lydia. Thank you.

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