The Economic Comeback: Analyzing Market Dynamics Ahead of Fed Day

Well, one of Wall Street's hottest trades run it hot.

Now despite weak job numbers and tariff concerns, investors are betting on an economic comeback fueled by tax cuts, as well as expected rate cuts from the Fed Reserve, and that bet has sent markets surging.

Tech stocks are leading the way, and even some new stocks are making a comeback.

But despite the headlines, many on Wall Street still see room for more upside.

Well joining me here at the New York Stock Exchange as the Fed meeting kicks off today is Eddie Gaburra, co-founder and CEO of Key Advisors Wealth Management.

Eddie, great to have you on the show.

Thank you so much for joining us for having me today.

Well, of course today is Fed day, and tomorrow we get the raid announcement after the conclusion of the FOMC gathering.

But what do you make of where equity levels are right now?

So I know the big argument that the Bears have is that they're overextended right now.

Valuation perspective, and I think what people need to understand is when you're in a bull market like we're in now, valuations can go much higher just like in a bear market, things can get much lower and overextended.

So this Fed was the last piece of the puzzle for the bulls to increase liquidity, and it's very rare to get a Fed cutting interest rates when markets are at all-time highs and you're in a non-recessionary environment.

So we think it's going to be like adding fuel to the fire, and this market over the next 12 months should continue to trend higher in our opinion.

And Eddie, of course we're paying attention to what the Fed says tomorrow after that rate decision and during Powell's presser.

So what are some key terms you're watching out for?

Why?

Well, I don't, I believe we may get a sell the news event during the presser because the market is fully pricing in 3 rate cuts for this year.

So that's what they're going to want to hear.

But I don't think PA.

Going to show his cards in regards to how many rate cuts.

So if he comes across at all as a little bit more hawkish than what's priced in, I think you'd get a little bit of pullback.

I mean we've had 9 straight days and Nasdaq's been up, but I would take that as an opportunity to continue to buy on those dips because regardless of what he says, we know the trend over the next 6 to 12 months is loosening monetary policy.

In a non-recessionary environment, and that's a Goldilocks scenario for a bull market.

So Eddie, I do want to ask you what we're seeing underneath the surface as well as factors and sectors for the major stock averages because we're seeing AI names lead the way higher.

We're seeing the mag 7 names up again.

So what do you make of what we're seeing below the surface?

So we're starting to actually see some broadening out, and we've broadened out our portfolios.

We were so concentrated in tech for a long time because that was the only.

Place to really be from a bullish structure, but now you've seen small cap stocks break out.

You've seen discretionary names come out.

Small caps have outperformed the S&P the last few months.

So as well as financials are starting to really catch a bid.

So the fact that things are broadening out is very positive structurally for the market and for investors they can now diversify and still be in areas that can beat the S&P over the next few months.

Yeah, and with things being so elevated and expensive, you mentioned.

The small caps.

But where do you think the risks are right now?

So the risk is a surprise on interest rates.

The interest rate market is going to drive the bus on everything.

And so it's not just looking at the Fed, it's the bond market.

As long as the 10 year bond stays under 4.5%, which we're well below that right now, that is a very bullish thing for small caps.

But as rates go up, it really hurts small caps, and they've been big underperformers and probably the most hated area of the last four years from a market standpoint.

So the bet on small caps is rates are going to stay low over the next several months, but if that changes, we'll have to sell out of that position and go somewhere else because they can't handle a rising interest rate market environment.

Yeah, you mentioned bonds and you mentioned that 4 year time frame, but even if we zoom in closer and we think about last autumn when the Fed began their rate cutting cycle and the bond vigilantes coming out, what do you expect?

See for the remainder of this year and why, I think we've seen the lows in the 10 year bond, to be frank, because again, structurally inflation is still going to be high, and we think inflation is actually going to accelerate over the next few months because this stimulus they're putting in is actually inflationary.

So the bond market, we think is seeing its low, so you'll see increased volatility.

But the difference is if we get growth to far outweigh the concerns of the bond market economically, we'll be OK, and that's what our bet is right now is with the tax cuts, deregulation, and now a Fed stimulating at a time that the economy may not necessarily need it, you're going to overshoot on the growth side, and that's what we're betting on.

And finally, Eddie, before I let you go, we have about 60 seconds here and you mentioned a lot of key events that we're paying attention to.

All eyes are on the nation's capital as politics, geopolitics remain top of mind.

But when it comes to key catalysts as well as price targets, what are you looking at?

So in regards to catalysts, of course earnings, we need to continue to see earnings acceleration and growth, and this is why you're seeing some names.

You have to be.

Very selective on the individual name side and know where you want to be because there have been some big moves.

So stock selection is going to be critical in this late stage going into year end.

So earnings number one is going to be top of mind once we get past this Fed.

And then again, you know, keeping an eye on monetary policy, they go from 3 rate cuts to 2 this year getting priced in.

That again is going to cause some volatility to the downside.

So as bullish as we are, we expect 4 to 6% moves to the downside on the way there.

So you've got to be nimble and be very active in moving things around in this ever changing market environment.

Well, Eddie, we will have to leave it there, but perhaps next time I can get your take on whether you think we should be getting quarterly reports out from the major publicly traded companies.

So thank you so much for joining me today.

Absolutely, thank you for having me.