Well, Wall Street took a breather on Monday, pulling back after a rally that launched the Dow to its first record of 2025.
The Dow industrial surged more than 800 points at the end of last week as investors celebrated.
Feter Powell signaled that rate cuts could come as soon as next month, and Powell stating that the balance of risks may warrant adjusting our policy state.
Now that comment sparking a wave of buying across the market on Friday with even the most volatile stocks joining the Rico rally.
But as we kick off the trading week, I am joined by Jeffrey Roach of LPL Financial.
Thank you so much for joining us.
Well, first and foremost, we are looking at the major US stock averages trying to turn positive.
So first and foremost, what do you make of the latest headlines that are crossing the wires and what do you think of Fed independence?
Well, I think there's a lot of exciting things happening in in markets and certainly last Friday was one of them.
I think the fact that Jerome Powell stayed above the fray, as it were, didn't really enter into the the politics per se in his speech.
He talked about the basic things, the mandate for full employment, the mandate to manage price stability, and then of course, part of his speech was talking about the framework review that they do every 5 years.
Obviously that wasn't as exciting to discuss, but I think the fact is the economy is slowing, slowing nicely though, it's not a dramatic downshift per se.
But because of the slowdown, particularly in employment, I think it does warrant the Fed, particularly the chair, to highlight the fact that this next meeting in September will be a meeting where they indeed cut rates by 25 basis points.
Yeah, and Jeffrey, as you mentioned, we do have key economic data to parse through ahead of that September 17th rate decision.
This Friday we get PCE and of course next Friday, since it is the first Friday of the new month, we will be getting the jobs report.
But if inflation metrics are expected to pick up in the coming months due to tariff effects, how does that square with the case for near term rate cuts?
Well, it does put the Fed in a very tight spot, so I think you're going to hear more and more investors talk about stagflation risks.
And that certainly is the case where you have slow or no growth, but still inflation running hotter than Target.
You need to have those two ingredients in order for folks to start arguing through and working through stagflation risks.
We do indeed have some of those risks rising.
Perhaps maybe it's stagflation light as the economy does slow, but inflation is still hot.
I think to your question, well, does that warrant the Fed to take action?
I think it does in the near term, in the September meeting.
However, and here's where the dicey part is, it doesn't necessarily make it entirely clear on what the Fed does in the October and December meetings because of that sticky inflation that's remaining.
Yeah, so based on what you said, what are the implications for viewers out there who are watching right now and they're trying to plan their investments around Fed policy, not just for the rest of this year, but beyond 2025.
Well, I think longer term it's fair to say despite a slowdown in the economy, I think recession risks are still on the lower end of the scale, so that could be very helpful for longer term investors to weigh.
We're talking about a Fed easing up on rates without a recessionary scenario that's typically good for risk assets.
That's one thing.
The second The thing that I think our viewers need to remember is as the labor market shrinks, we need to have productivity growth offset that shrinking labor force.
Hence, tomorrow's earnings on Nvidia are very important.
We really need to see the foundations for productivity growth build up and get stronger as we think about 2026 and beyond.
And finally, before I let you go, you mentioned upcoming economic data, and we will be getting that revision to GDP this week as well.
But for viewers who are watching this and they're getting mixed signals about the labor market, trying to figure out what it means for their bottom line, what would you say to them as we head into the holiday month?
Well, businesses indeed had a really tough time finding qualified workers in the in the past several quarters.
And so because of that, despite a slowing economy, I think businesses are going to be less inclined to outright fire, but they're going to be less inclined to hire, and that's going to add some stability in the labor market.
Now granted, we also have some unusual impacts on just shorter supply of workers.
Uh, particularly in agriculture and services like restaurants, hotels, and construction as immigration crackdowns continue, that's going to put a little bit of a weight on just the labor supply side of things.
So it's possible to actually have a slowdown in the economy without necessarily an uptick in unemployment, at least as much as we would expect in a quote unquote normal cycle.
Yeah, and before I let you go, we have less than 60 seconds here, but the non-farm payrolls figure coming out next Friday.
So what are your forecasts?
Well, I do think that we'll have another sub 100 kind of report.
I don't think we'll have as dramatic of revisions, so I think that's helpful as we go into that report.
We shouldn't be surprised as much as we were last month, but we are seeing a fairly consistent.
Slowdown.
I do think we'll see maybe perhaps a slight uptick in unemployment, but not much, and a 75k number.
I think that's reasonable given what we see in the survey data like ISM and NFIB surveys.
Employment certainly is slowing, but it still will remain in the 50 to 100k range.
OK, Jeffrey, well, we will have to leave it there, but as always, thank you so much for joining us with all of your insights and of course sharing your perspective.
Thank you.
