In partnership with

 Gainers📈 & Losers📉

Our Biggest Gainers & Losers of the Day in the $100,000 Build Portfolio

For the 18th September 2024:

• Where Were You?! 😲 

• Back To Your Scheduled Programming 📺️

Where Were You?! 😲

Where were you when it happened? 📺️ 

I’m talking about today when the Fed (the guys who set the US interest rates) cut interest rates for the first time since 2022 & the biggest single cut since the pandemic! 🤯 

I know what you’re thinking. Why have they done that? What does it mean for me? How can I make money from it?

Let me answer those for you👇️ 

What Did the Fed Do? 🏦💥

So the cut was 50 basis points. That’s 0.5% to me & you.

Now wow what does that actually mean?

Well, Central banks (the Federal Reserve AKA Fed for the US) use interest rates to control how expensive it is to borrow money. Theory says high rates = less spend, slower economy, less inflation. Low rates = more spend, growing economy, higher inflation.

0.5% is a bigger cut than most analysts had planned for just a week ago & brings the interest rate range down to 4.75%-5%. On the surface it can set alarm bells ringing because it tells us the central bank might be panicking & hitting the emergency brake on a recession. I mean, the last time there was a 0.5% cut no one could leave their house & a global virus was on the loose….

To be fair to the FED, we have had 4 years of high rates with no breaks to combat inflation. Prices have started stabilising, inflation is showing signs of falling back down to their 2% target so we should just see how things go, right?

Wrong! ❌ 

Fed officials hinted that more cuts are likely before the end of the year. Everyone’s shuffled their projections around & now guessing rates could drop to about 4.4% by year-end & down to 3.4% by 2025

Why Did the Fed Make This Move? 🤔

The story of this rate cut is all about two things: cooling inflation & a weakening job market. Inflation’s been the centre of attention for the past 2 years but for all the wrong reasons. Even though it’s been pretty stubborn (and still above target, might I add) the Fed are convinced they’ve got it back under control..

Now the focus is shifting to the labour market, which is looking a little shaky. Unemployment has crept up to 4.2% from 3.7% at the start of the year. There’s worries this number will keep creeping up if no one intervenes which is why the Fed pulled the trigger on a larger-than-expected rate cut. You see why it’s looking more & more like an emergency brake?

Fed chair Jerome Powell didn’t shy away from it, though. He acknowledged the cut was a "strong" move, but said it was to “preserve progress” rather than signal panic. Should’ve been a used car salesman…

 "The labor market is in a strong place—we want to keep it there." he added.

In short, the Fed is trying to find the sweet spot that’d mean lower unemployment & cooling inflation. It’s a tough balancing act.

And they’re not alone with this move. Central banks in Europe, the UK, & Canada have all started cutting rates in favor of growth 🌱 

How Did the Markets React? 📈📉

The market took the cut the same way as if you were to tell your girlfriend she doesn’t look too fat in that dress.

Positive initially until she really thinks about what she just heard. (For the record, don’t say to your significant other 😅)

The S&P 500 hit an all-time high, Nasdaq flew & so did the Dow on the announcement. Then it all cam crashing right back down. Cue the volatility. And then all three ending in the red.

So why the rollercoaster?

It could be partly due to the larger-than-expected cut already being priced in. Although most expected a 0.25% cut, in the days leading up to the announcement, expectations started shifting. Some tools were giving a 40% chance of a 0.5% cut so by the time news broke, there wasn’t much upside left to ride.

Sprinkle in the fact that some investors are now worried it signals we’re in a weaker economy than they thought & were left with an empty tank of fuel for our gains rocket. 🚀 

How Does This Affect You? 💸

This is probably what matters most. All the theory is great but what does it actually mean for you? How are you going to be affected?

1/ Borrowers - It’s great news for borrowers. Businesses get access to cheaper capital to grow faster. Individuals will have cheaper mortgages, loans, & credit card debt. That should put more money in consumers' pockets & give the economy a little boost.

2/ Savers - Not ideal for savers or companies sitting on huge piles of cash. Looking at you Berkshire Hathaway with $277 BILLION in cash 👀 Lower interest rates means savings accounts, CDs, & bonds will offer lower rates too. If you’re relying on fixed income or interest from savings, it might be time to start eyeing up other options.

3/ Investors - It should be great news for us if we can avoid a recession! Rate cuts boost stock markets because they make borrowing cheaper for companies & encourage investment. In the past, the year following a rate cut has been a great one for the S&P500. That said, there was a lot of volatility today so what would be your best bets? Here’s what I’m doing….

How Can I Profit from This? 💰️ 

First things things first - you can’t go wrong buying into an index. It’s the safest & most consistent option. S&P500 is great. Nasdaq is better if you can handle a little more spice because it’s weighted more to the high growth tech stocks which have a little more volatility.

What else can we do?

Lower rates mean stocks usually get a boost, since companies can borrow money more cheaply to grow. But who or what sectors would stand to benefit the most from cheaper money & lower rates?

Tech, consumer discretionary, & real estate stocks. These sectors love cheap cash!

Why?

1/ Tech: This is especially true for high-growth companies with big plans for the future. Think Nvidia, Palantir, Tesla. Tech companies rely on borrowing to fund fast growth. Lower rates make it easier for them to finance research, acquisitions, new product development all without racking up huge interest payments. Faster growth, higher revenue, lower costs = higher share price.

2/ Consumer Discretionary: Retail, travel, & luxury goods. They all benefit from people having more money in their pockets to spend from the money they’ve saved on cheaper mortgages, car payments, credit cards. More disposable income means more non-essential spending. Think stocks like Carnival Corp (which I think is undervalued anyway, you can read my theory here), Amazon

3/ Real Estate: Real estate is all about leverage. Borrowing money to make even more money. Cheaper rates means more buyers. More demand means higher prices. REITs like Prologis & American Tower could be a good bet in this sector.

Another tip for you 🪄 

Look at dividend stocks. I’m talking about the ones that have stood the test of time. Coca Cola, Johnson & Johnson, ExxonMobil.

They tend to perform well when rates drop because income investors start looking for new new areas to park their cash when bond yields & saving accounts drop.

The Daily Newsletter for Intellectually Curious Readers

If you're frustrated by one-sided reporting, our 5-minute newsletter is the missing piece. We sift through 100+ sources to bring you comprehensive, unbiased news—free from political agendas. Stay informed with factual coverage on the topics that matter.

Join for free today!

Back To Your Scheduled Programming 📺️

Not your typical Gainers & Losers where I analyse my best & worst performing stocks of the day.

But….

US interest rates are pretty important when it comes to investing because it tells us how the wider economy is doing & where it’s heading.

We need to know these things so we’re best equipped to buy stocks that’ll stand to benefit the most.

Because of that, I wanted to give it the time & attention it deserves to keep you informed! Hope you found it helpful & I’ll be back to the regular stock analysis tomorrow! 😄 

PS Please rate today’s email below! If you loved it, I can do more like this in the future. If you hated it well… at least I know & can keep giving you more of what you love!

That’s all! See you same time tomorrow 👋 

P.S Hit reply & let me know what you thought of today’s newsletter. All feedback is welcomed ❤️