Transcription
up about 102 points in the S&P 500, up about 1718 points right now. Tom Lee, Fundstrat Global Advisors head of research, good morning to you. Want you to weigh in, if you could, on this debate we've been having, or I should say the debate maybe the White House is having, over these jobs numbers and what it portends for the economy and therefore what it portends for the Fed.
Well, we can see that Fed fund futures jumped from roughly 2.3 cuts by the end of this year to almost three. So on the heels of that jobs report, the bond market essentially is saying that the labor market is now deviating further from the Fed's target than inflation, and therefore justifying actually one additional cut. So I think that makes sense to me because we know inflation, and that August CPI gets reported this week, maybe elevating, but that the markets are going to begin to view that as transitory. Whereas the weakness in the labor market is, you know, once it begins to to weaken, it's very hard to reverse that momentum. So I think it's important for the Fed to intervene quickly.
And is your, are you of the view, three times this year minimum?
It seems to me, if, if I look at what the bond market's pricing, which is now essentially three cuts, and the Fed is talking about two, the bond market is saying the Fed is behind in terms of how they're perceiving these changing conditions. And so I think on on the 17th, when the FOMC makes its rate decision, I think there is a chance the Fed's response to that. And if it does, it's going to be good news because the bond market is going to take comfort from the Fed recognizing the labor market's weakening.
Hey, Tom. Even if the Fed cuts rates, it controls the short end but not the long end. What do you anticipate happens on the longer end? And what do you think happens to the mortgage market too, as a result?
The long end is something to wonder about because we know globally, the third year especially has crept up, and we know that the Fed and other central banks have acknowledged that monetary policy has a lot of influence up until five year. You know, the correlation is 90%. But once you get into the ten year, the bond market is making its own decisions about growth. That so that is something kind of troubling. But on the other hand, I think mortgage rates could come down sharply because the spread between the 30 year mortgage and the ten year is over 300 basis points. The 50 year average is around 160. So the Fed, if it begins to resume cutting and the bond market views that as essentially an easing trend, the 30 year mortgage could drop 150 basis points if the tenure doesn't even move. That's a lot of easing for the housing market.
That is a big deal. And I know you're not an economist, but you have to have a view on where you think the economy is headed. If we get these Fed cuts and the economy, you know, doesn't take a steep leg down, despite what we've seen with the jobs market, that's one thing. But if we get these cuts and you're also dealing with a slowing economy, potentially even a recession down the road, I mean, that's a completely different story. You look at these Fed cuts as for good reasons, because we can do it and get away with it and it's going to improve the economy. Or you're looking at this and thinking, I worry about what comes on the other side.
Yeah, I'm going to take the camp that I think that these cuts are actually going to be very constructive for the economy, because the 30 year mortgage is strangulating the economy. We know housing has slowed dramatically, but we also know that there's a lot of pent up demand for housing. So it's a market that does need to be fixed in terms of easing sort of supply demand conditions. And we also know that ISM, which is a measure of business confidence, has been below 50 for 31 months. It's the longest stretch since the ISM has ever been created. So I think business confidence recovers if the Fed starts to cut. And so the combination of easing mortgage rates, business confidence recovery, I think is kind of a broadening cycle. And actually, I think that's why small caps have been the second best performing group after Mag-7 over the last eight weeks.
Tom, you know, one of the things that Scott said was he thinks that the economy is actually in better shape than we think and that the jobs numbers are going to get better. How does that factor into your thinking, or does it?
I mean, I think on the margin, I'd agree with Treasury Secretary Benson's comments for two reasons. One, when we go through corporate earnings, we don't have any increase in comments from businesses saying business tapered off in July or August. So even though the labor market shows like it's deteriorated the last two months, business conditions haven't. In fact, even the Fed's Beige Book, most regions reported improving conditions. So that is one thing. And the second is we know the labor market undergoes a lot of revisions and we get September's benchmark revisions. I think it may show that the job market's been weak all year. And in fact, maybe the last few months have actually been stable. So I think Treasury Secretary Boorstin is sort of correct to an extent.
Tom, Bitcoin, before we let you go, tell us what you think. We're at about $111,000. The upside, the downside from here.
Bitcoin and cryptocurrencies like Ethereum are super sensitive to monetary policy. So I think that September 17th is an important catalyst. Crypto typically does really well in the fourth quarter. So I think Bitcoin can easily get to $200,000 before year end. I know it's a big move. It's almost a double. But that's also going to be a.
Double from here. Let's just hold on. Let's just take a quick pause. A double from here. So everybody's listening to this, we're at $111,000, and you think by Christmas time, effectively, we could be at $200,000?
That's right. One of the reasons Bitcoin stalled this year is the Fed's been on pause for nine months. That pause all year. If you look at an easing cycle that's only happened two other times in 1998 and 2024, where the Fed began to resume cuts in the fourth quarter in September. Equities do really well. As you know, crypto is beta to equities. So I think it's going to be a very strong fourth quarter. Small caps should also rally like IWM. But that also is really bullish for Ethereum, which is highly linked to small caps.
So you are seriously bullish into into the into the end of the year at this point. Given these, given these rate cuts, you don't look at it as bad news is good news, but therefore the good news can't be that good situation.
I would be more cautious, Andrew, if we didn't encounter so much skepticism about stocks. I think year to date, the S&P is up 10%. As you know, when you look at a pretty good measure, like a net bulls less bears, it's been negative for five weeks. So at all time highs, investors are bearish. And we find that skepticism among our institutional clients. So I think most are kind of bracing for