Business Rundown: Market Pullback After Rate Cut Uncertainty
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After rising during a post-election boom, stocks pulled back at the end of last week as the pace of further Fed rate cuts came into question. The market really is going to focus on the economic data, right? It understands that maybe the Fed cut is off the table. So that's going to cause now investors to start to look once again on the economic data points, right? What's inflation doing? What's the economy doing? Last Friday brought us some important economic data in the form of stronger than expected retail sales and increased prices on imported goods.

Fed Chair Powell spoke publicly last week suggesting that the job growth and economic numbers they are seeing mean the Fed can take its time in making additional rate cuts.

Investors certainly read this as a sign that a December cut may be less likely as we saw stocks retreating from their post-election surge. Traders are also trying to take a closer look at exactly what some of these new Trump administration policy plans may mean for the economy. Now, this week, investors will be bracing for a key earnings report from Nvidia to give them a bit more indication that the market can continue its positive trajectory or if the market pullback is a trend that is here to stay.

So listen, I think there was a lot of the rally that we saw post the election was just a relief rally, right? Relief that it was over, not necessarily because of the candidate, but the relief that the election was over. It was chaotic. It was contentious. It was definitive. So there weren't going to be any court challenges and it wasn't going to be dragged out. So I think that was

part of the move. Kenny Polcari is chief market strategist and managing partner at Slate Stone Wealth. Now notice in the last couple of days, we've actually lost 60 percent of the gains that we had that first week. So I think it's just causing investors to kind of do a

a double take, right? They want to sit back. They want to watch. Yes, they understand. They got euphoric. It was all very exciting. But now they have to start to really focus on what's it really mean? What are the cabinet appointments mean? What does the policy mean? What does it really look like? What are earnings starting to happen? They're starting to focus back on some of the fundamentals again.

So I think that's a great point. And I want to know from you, you're so experienced in this. How do you think the market's going to react if, for example, Doge starts cutting the federal budget dramatically? Will that be seen as a positive by the markets or a negative?

I think that'll be seen as a positive. I think that the country wants to see wants to see the wasteful spending stop. Right. So I think actually, if we see significant cuts from this Doge, from this new department, I actually think it'll be well received by Americans and then by the market. Right.

And so it'll help government spending. It'll help bring down government spending. It'll help focus on what's important and what isn't. So I'm bullish on the idea that that Doge is going to start to cut expenses or at least look to cut expenses. You know, I'm not sure how much you're going to end up doing is two trillion the right number. I don't know. But ultimately, I do expect that we're going to see some some real action. And I think the market will welcome it.

Let's talk about the Federal Reserve. You know, we had been expecting a 25 basis point rate cut at the end of December. Clearly, that's sort of off the table right now. What does the market need to continue powering ahead next year?

So I think what the market really needs is the market really is going to focus on the economic data, right? It understands that maybe the Fed cut us off the table. Quite honestly, I don't think they should cut again. I think rates are fine where they are. I don't think they're restrictive, but I don't think, I think we're at the neutral rate. I don't think they're stimulative, but I don't think they're necessarily as restrictive as some people think it is. So that's going to cause now investors to start to look

once again on the economic data points, right? What's inflation doing? What's the economy doing? What's, you know, purchasing managers index? How's housing? What's the future for, you know, company earnings? Like we're already starting to see in 2025 some revisions to, I think, what were fairly optimistic numbers. Not that they're going to go negative, but I think you're coming into more of a reality now. And so that's what the market's going to have to

Well, let's dig into what you're talking about there, because I love that. You say it's going to be about the economy. It's going to be about earnings. Markets famously trade on future earnings. We're getting NVIDIA results this week. And I want to know what you're expecting out of NVIDIA.

So NVIDIA, I'm expecting actually them to surprise, right? I think if we look for 15% growth, I think that's probably right in line. I wouldn't be surprised if we see Jensen Huang actually surprised to the upside. Now, I know there's a negative story today all about the servers have to be redesigned because there's an overeating issue, but I think that's a temporary thing. I don't think that's going to be a game changer. I don't think that's going to derail NVIDIA.

the report or what I'm going to or what we're going to hear from the report. Quite honestly, I think that's a short term blip. OK, so is it coming late? Yeah, sure. But I think it's a short term blip. Do you think all of tech can follow NVIDIA's lead?

I think that tech will follow. Now, look, tech is stretched. Let's be honest. Tech is a little bit stretched. It needs to pull back. Things like NVIDIA, you know, you may see NVIDIA correct after the earnings. Maybe it comes down 10% or 12%. I mean, it's almost, I think it's down 6% right now off the high. So another 6% or 7% would actually be healthy for NVIDIA and then for tech in general. But yes, then I think once we get a little bit of a shakeout, the market pulls back, maybe a test of trend line, the S&P 50-day moving average trend line.

And then we start to focus again. But yes, I think AI is going to be the place to be. I don't think this is going to derail NVIDIA. And I think tech is going to continue to be a strong suit going forward.

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So interesting, that sector. It just powers ahead, takes a licking and keeps on ticking. Let's move to the economy broadly, though. I want to talk about, you know, with those stronger than expected retail sales, how is it that consumers can continue to spend willy-nilly? Where is that?

this money coming from? Well, I think what you're starting to see is I don't necessarily think that they're spending willy nilly out of the checking account. I think that a lot of them are still supporting this on credit cards and on debt. And I think that's going to have to start to come to a little bit of a halt. But look, I also think that the retail sales numbers also impacted by the price that people are paying for stuff. Right. So you're spending more, but you're getting less because of inflation.

So I think you have to kind of dig down in between and really see, is it that consumers are actually spending more and buying more, or are they spending more and buying less actually because of inflation? And I really think that's the case, which is why a decline in inflation, I think, would really help the consumer for sure.

That's such a great insight, Ed. I'm sure you're absolutely on target there. As you look forward into 2025, I mean, this is typically what happens to a new administration. They're inheriting the economy of the previous administration. And in this case, it could be that we see a recession in 2025, 2026. What does your crystal ball tell you about the health of the economy going forward?

So listen, I know this might not be the answer everyone wants to hear, but if people really want to see prices of items actually come down in price, they're going to have to see a recession. The Fed's going to have to let this economy go into a recession if you want to see a real decline in prices.

they continue to navigate this soft landing and don't worry about it and everything's good, then prices are going to remain elevated and everyone's going to have to just get used to these are going to be the normal prices now higher. But if people really want to see lower prices, they have to allow, they have to be prepared to let the Fed go put us into a recession. Not necessarily a deep dark one like we had in 1980 when Paul Volcker slammed rates at 21% and sent us into a two-year debacle. Not that at all.

But there's got to be some correction if you want to see prices drop. If you don't, then everyone's going to have to just get used to it, hope that wages keep up and this is going to be the new normal. Well, that's the way it happens typically, right? You get a recession and it cuts prices. I've been telling that to people for a while and they don't like to hear it. Let's look more near term here for just a second, though. End of the year, famous for the Santa Claus rally. Do you think we'll have one?

So I think we will, because I don't think we're going to have a massive Santa Claus rally. But I think what we're going to see the market do now over the next couple of weeks is actually pull back, kind of go through that Trump trade, maybe reset a little bit, test lower, fill the gap that was created on November 6th when the market opened up 80 points from where it had closed the night before. That's a gap on the chart that needs to be filled. That means we have to come back to the 57, 80-ish area to fill that gap. And then we might churn a little bit. We'll test support.

And then we'll start to rally. And I think we rally into year end takes us right back to like the 6000 level. I don't think we're going to 6200 by year end, but I do think we're going to close back up to the 6000 level, which is probably up just about two and a half percent from where we are today. You know, given if you know, given the fact that we back off even a little bit more, you know, then it'll be a larger rally into the bell. But that's into the close to the year end. But that's where I think we're going to be.

So we started the conversation talking about how investors, small investors like me, are optimistic generally. But we are seeing those valuations creep up. These stocks are getting expensive. What would be your advice to individual investors right now?

So my advice is always the same to individual investors. Make sure that you have a portfolio that you understand. Make sure that it's well-balanced. Make sure that you own the biggest names in the sectors you want to be in, the large mega cap and the large cap names, because they offer the most liquidity. They offer better insight. They're usually good dividend-paying stocks, and they'll help ride through this storm. And then take advantage. If we see a pullback, like things like NVIDIA, unless that story continues,

significantly changes, a pullback at 10 or 12 or 14% pullback in NVIDIA would be a massive buying opportunity for the long-term investor. So you have to look at names that you own and take advantage of those dislocations when they happen, assuming that the story, the fundamental story that you own them hasn't changed. Amen and amen. Couldn't agree with you more. Kenny Polcari, we're trying the chicken balls. Thank you so much.

Hi, everybody. It's Brian Kilmeade. I want you to join me weekdays at 9 a.m. East as we break down the biggest stories of the day with some of the biggest newsmakers and, of course, what you think. Listen live or get the podcast now at BrianKilmeadeShow.com.