Market Movers: Trump’s Win and the Fed’s Rate Cut

This week has been significant for market-impacting events.

First, the presidential election occurred on Tuesday. Many were surprised by the quick call of Donald Trump as the winner. This became clear in the early hours of Wednesday when results showed Trump performed better than expected. To share my insights, I sent a special election video reaction to Market 360 readers yesterday, which you can view here.

However, there is another critical event that deserves attention. Under normal circumstances, this would be the main focus of financial headlines.

I’m referring to the Federal Reserve’s November Federal Open Market Committee (FOMC) meeting, which wrapped up today. In the previous meeting, the Fed cut rates by 0.5%, marking its first rate cut since March 2022. Officials also indicated that more cuts can be anticipated before 2025.

In today’s Market 360, we will analyze the Fed’s recent rate cut. But first, let’s revisit two important reports from last week that likely influenced this decision: the October payroll report and the latest Personal Consumption Expenditures (PCE) report. I’ll also highlight which of these events might lead to a new market surge… and how you could benefit.

Key Reports: Understanding the Influences

Last Thursday’s PCE report revealed a headline increase of 0.2% in September and a 12-month rise of 2.1%. In contrast, core PCE — excluding food and energy — climbed 0.3% and showed a 2.7% increase over the past year.

It’s important to note that core PCE is the indicator the Fed prefers for measuring inflation. While getting back to the Fed’s 2% inflation goal remains a task, it’s evident that inflation is moving in the right direction.

On Friday, the labor market news was disheartening. The Labor Department announced that only 12,000 payroll jobs were created in October, significantly lower than the expected 100,000.

The situation worsened with revisions: August and September’s figures were cut by a combined 112,000 jobs. The manufacturing sector has lost 46,000 jobs, partly due to ongoing issues at The Boeing Company (BA). On top of that, the number of unemployed increased by 150,000. Although the unemployment rate is stable at 4.1%, this is due to a shrinking workforce.

Overall, the payroll report presents a troubling picture that may need further revision with additional data. However, it has already led to lower Treasury yields and raised concerns for the Federal Reserve regarding the job market and inflation.

Details of the Fed’s November Rate Cut

As anticipated, the Fed opted for a 0.25% interest rate cut today. Let’s examine the specifics…

In September, the Fed’s decision was met with a dissenting vote for the first time in nearly two decades; however, today’s meeting resulted in a unanimous decision. Yet, the Fed provided little clarity on future cuts, leaving upcoming decisions uncertain.

This uncertainty coincides with the U.S. dollar reaching its highest point in three months, and rising Treasury yields are a consequence of the “Trump trade” and expectations surrounding a larger federal deficit. As I mentioned in a prior Market 360, these trends have significant implications.

Currently, the 10-year Treasury yield is about 4.33%, having increased from 3.64% in September. Historically, the Fed prefers to align its rates closely with market levels, making today’s cut an adjustment to avoid disconnect.

The committee’s official statement mentioned that it now “judges that the risks to achieving its employment and inflation goals are roughly in balance.” This change is notable, especially since they removed previous language expressing greater confidence about inflation reaching its 2% target.

In other words, the Fed appears equally concerned about jobs and inflation, which is significant since it has a “dual mandate” to maintain both.

During a press conference, Fed Chair Jerome Powell noted:

We know that reducing policy restraint too quickly could hinder progress on inflation. At the same time, reducing policy restraint too slowly could unduly weaken economic activity and employment. Considering adjustments to the federal funds rate, the committee will carefully assess incoming data, evolving outlooks, and balance of risks. We are not on any preset course. We will continue to make our decisions meeting by meeting.

In essence, we are entering a waiting phase. I expect the Fed to pause any further cuts in December, but we must stay attentive to economic data and developments in the Treasury market.

Potential Market Surge Following Trump’s Victory

The interaction between last week’s inflation reports and the Fed’s decision this week has certainly influenced the financial markets. However, Trump’s electoral win arguably triggered the greatest immediate impact. Following the announcement on Wednesday, the Dow rose by more than 1,500 points, the S&P 500 increased by 2.5%, and the NASDAQ surged by 3%. After today’s FOMC meeting, the NASDAQ went up 1.5%, the S&P 500 increased by 0.7%, while the Dow remained relatively stable.

This victory has opened up numerous opportunities in the market, positioning investors for potential profits.