NYSE Strategist Breaks Down Fed Rate Cut and Market Rotation

Let's get to the big story breakdown ahead of the market open.

We are looking at US futures lower on the heels of the latest economic data.

Now the Federal Reserve delivered the expected 25 basis point rate cut at its December meeting.

The surprise came on the balance sheet with the Fed announcing it will buy about $40 billion a month in Treasury bills through April.

Now Powell saying there is no risk-free policy path and that rates were cut.

As the labor market has softened more than expected.

Well, looking ahead, Friday marks the final major liquidity event of the year with the triple whiching expiration and the S&P quarterly rebalances.

Joining me this morning is Michael Ryan King, senior market strategist for the New York Stock Exchange.

Michael, good morning.

We finally got that economic data we were waiting for.

So what do you make of the data?

Yes, thanks for having me.

And there was, there was a lot of data that That we had to digest this morning.

There's a lot of push and pull within that data as well.

So if you look at, we'll start with the jobs numbers and if you look at the October numbers, we saw a very big decline of 105,000 jobs.

That was primarily driven by federal jobs, right?

So that was kind of the delayed impact of Doge and some of the resignations that were happening there.

Now the November.

Kind of bounced back a bit, and I think one of the key points over those two months is that you saw private sector hiring held over 50,000 jobs in both months, right?

So your private sector hiring held pretty steady.

Now we didn't see the household survey in October.

That household survey is where you compute the unemployment rate from, and then so the November number looks from November.

With a look back to September and we saw an increase in the unemployment rate to 4.6%.

Now the one kind of caveat within that is that you saw the labor force participation rate move up.

So you're looking at the unemployment rate moving up, not necessarily for a bad reason, kind of within within that data.

All the pay data kind of holding somewhat steady, easing some of the inflation concerns.

You're not seeing any kind of signs that kind of pay increases are going to kind of push that inflation side of things ahead of Thursday's numbers.

Now the retail sales number of headline also came in a little bit light.

But if you look at that control group which feeds into GDP that came in at like 2x, 2x the expectations, up 0.8%, so a pretty solid number with the look back to last week's Fed rate decision.

Chair Powell kind of kind of prepared markets for the idea that there was going to be a lot of that this data was going to be pretty sloppy and you were going to have to see how things kind of played out over a period of time.

So I think like the market reaction.

You're seeing a muted market reaction because Chair Powell kind of told you their reaction function to this data is also going to be muted and then just you know the other point being that we have inflation data on Thursday which I think is important and then we also get another round of data before they meet again in January.

And of course the implications on the market.

We know the economy is not the market and vice versa, but what do you make of the market rotation that's actually happening?

Yes, so I mean the market rotation has been kind of very strong over the last month or so, right?

And that's kind of moving along with the kind of the.

Expectations for Fed policy and that kind of shifting in a little bit of a more dovish direction, but it's also happening partially due to this kind of fracturing that you're seeing kind of in that AI narrative and in the AI complex and as there's more concern on that front and that trade has been really kind of drawing all of the investment dollars out of everywhere else in the market and as you're starting to see a little bit more concern on that side of things, you know around kind of debt financing, ultimate profitability and if you think about kind of one of the big drivers of kind of the mag 7 over the last over the last couple of years has been just this enormous amount. cash flow that they've been throwing off, you're starting to impair some of that cash flow, right?

So you're seeing kind of that rotation happening for a couple of different reasons and then the other piece of that is just the idea that you get into the end of the year and the beginning of the year where traders start to look for kind of mean reversions areas of the market that have underperformed as you kind of get through tax loss.

And things like that.

So you're also, I think that's also kind of at least on the margin, having an impact.

And Michael, of course, as we head into year end, we'll keep an eye on year to date gains, not just for the equity markets, but also commodities and other asset classes.

So when it comes to price targets, what are you watching and why?

Yes, so the idea of kind of the year-end price target, I think, is a very tough.

One where you're trying to time stamp one exact moment in time, you know, as I think, I think one of the key things to think about is that we're on our 3rd year, hopefully, you know, barring any kind of significant sell off in the last 2 weeks where you're looking at over double digit gains for the S&P 500, you know, a lot of that is coming from kind of the.

Increase in earnings that you're seeing kind of at the corporate level right that's expected to continue as we head into next year, right?

You're now starting to see kind of the street is starting to get pretty, pretty optimistic about what we're to expect next year you know you do.

Expect to see kind of the positive impacts of both fiscal and monetary policy that should help equity markets and that does create a pretty good backdrop.

The one thing that you have to kind of keep in the back of your mind along with that is that within the four-year presidential Cycle right the midterm election year does tend to be kind of one of the underperformed is the worst of those of that four year cycle historically but I think overall that backdrop is set up for another kind of positive year next year.

You know, it'd be tough to repeat what we've seen over the last 3.

And Michael, before I let you go, less than 60 seconds here, but we know that we've been seeing an outperformance in precious metals.

So do you expect more of the same in 2026?

Yeah, I mean that's an interesting, you know, question, right?

We've seen you know kind of quite a bit of weakness in the US dollar, right, and you're kind of this, the idea of this dedollarization and you know kind of people looking for alternative places to kind of find that store of value and move capital flows right so.

I think there will be kind of an underlying bid here, kind of the continued kind of parabolic move that we're seeing.

I think that's also probably a little bit hard to repeat again.

OK, Michael, thank you so much for joining us and thank you so much for weighing in on the latest economic data.

Thanks for having me.

Thank you.