Juggling Dynamite

The U.S. Federal Reserve slashed interest rates for the first time in four years, and in the same week, Canada’s inflation rate reached the Bank of Canada’s two percent target. Andrew Chang explains why this is prompting economists to predict more aggressive rate cuts are on the horizon. Here is a direct video link.

Canadian mortgage rates have already come down significantly from their peak last fall, yet home resales have flatlined.
With home prices off just 3.9% nationally, year over year, too-high asking prices remain the largest hurdle to affordability.

The weakening employment picture is set to be another negative over the next year, at least.

On Wednesday, the Fed cut its policy rate by 50 basis points. The last three times they cut by this much were January 3, 2001, September 18, 2007, and March 3, 2020—all three marked the beginning of major recessions and stock market loss cycles.

Danielle was a guest with Jim Goddard on Talk Digital Network, discussing recent world economy and market developments. You can listen to an audio clip of the segment here.

Rising unemployment has overtaken inflation as the dominant fear, and today is expected to bring the Fed’s first rate cut of a new easing cycle.

Like Pavlovian dogs, stocks typically rally in anticipation of Fed easing. However, unemployment continued to surge in the eight recessions since 1969, and stock markets eventually fell an average of 24% in the 195 days after the first Fed cut.

In the three rare incidents where stocks entered cutting cycles at extreme valuation highs, similar to now (1973, 2000 and 2007), the S&P 500 lost 35 to 56%. The masses holding little cash and bonds with record equity allocations are set up to suffer.

Anna Wong, Chief U.S. Economist of Bloomberg Economics, discusses the health of the U.S. labor market, the chance of a recession “steepening”, and the election’s impact on economic growth. Here is a direct video link.