Closing Bell - Closing Bell Overtime: Fed Day Special 9/18/24

Episode Date: September 18, 2024

Stocks closed mostly lower after the Fed cut rates by 50 basis points in the first cut since the early days of the pandemic. Jefferies’ David Zervos and BD8’s Barbara Doran discuss the market reaction and where stocks could head in the post-cut world. Investor Dan Niles talks about the impact on tech stocks and energy. Mark Mobius breaks down global market opportunities. Former Boston Fed President Eric Rosengren weighs in on where Fed policy could head next. 

That's the end of regulation. Avery Dennison ringing the closing bell at the New York Stock Exchange. The U.S. Department of State Bureau of Consular Affairs doing the honors at the NASDAQ. What a day. Stocks giving up initial gains after a 50 basis point cut from the Fed. This was the first rate cut since the start of the COVID pandemic back in 2020. The Dow had been up 375 points at the highs, touching a new record. We saw a new record for the S&P 500, too. The NASDAQ giving up a 1% gain. That's a scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. Yeah, we've got a great lineup of experts here to break down the

Fed decision and what to do next with your portfolio, including David Zervos from Jefferies, Barbara Duran from BD8, former Boston Fed President Eric Rosengren, global markets expert Mark Mobius, and tech investor Dan Niles. Let's begin with our market panel. BD8 Capital Partners CEO Barbara Duran and Jefferies Chief Market Strategist and CNBC contributor David Zervos. It's good to have you both here. David, I'm going to start with you because we went back and forth in stocks post-Fed

and as Powell was talking in his press conference, but major averages with the exception of the Russell 2000 finishing the day lower. You had yields across the curve higher, dollar weaker, gold reaching a new record, too. What does this tell us about the market's at least initial reaction to what we heard today? Well, actually, Morgan, I think you're 100 percent right, although the dollar strengthened quite a lot of the dollar yen was higher and the euro-dollar weakened. So it was really a risk-off story. And I think you can trace it to two things. One is the dots in 2025 weren't that exciting for the market.

The Fed isn't getting to neutral as fast as many had hoped. And they sort of front loaded this move before an election. And I think there's a few conspiracy theorists, skeptics out there that are going to say, well, wait a minute, that looks a little fishy. And the 10 year note doesn't like fishy. So you got a lot of a lot of mixed messages and probably a reaction, Morgan, that the Fed is not very happy about it. They wanted to put more easing in financial conditions into the marketplace because they were worried in taking out an insurance policy. A stronger dollar, a higher 10-year note, a higher two-year note,

and weaker stocks didn't happen. And I'm glad you brought up the fact that the dollar actually ended up reversing course and strengthening again, because it really speaks to the market move we saw after this jumbo-sized cut by the Fed, Barb. I realize there had been the case building and markets had been pricing in the possibility that we got 50 basis points today. Powell was also pretty strong in saying in the press conference that, you know, this is not the start of more 50 basis point cuts. And obviously, we can look at the dot plot, too. And I thought the point that David just made about the Fed basically taking out insurance was pretty notable. How do you see this shaping up from here?

Well, you know, I think if the Fed had just done a 25 basis point cut, I think the market would have gone down more. I think the 50 bps is the right thing to do at this moment because they made it clear the economy is strong. They feel that inflation is going to continue to come down and they do have. But they're worried about labor. It's now one for one in jobs. They've got, you know, different job openings that are not there's not layoffs that are happening. So I think the Fed really is taking out an insurance policy because they don't want to wait till they see layoffs. They don't want to wait to see they have a big drop. So I think they're trying to make sure that they keep the economy on an even keel. And he's given plenty of signals this last six months about that.

So I think the market could switch around here because I think the focus now would be, since they did not lay out a clear path of what would happen next, what I heard was basically that they're still going to remain data dependent. And if they need to, inflation perks up, they'll do something. If labor suddenly slows, they'll do something else. But so I think it means more volatility, but we're also going to have to focus on earnings. And so far, you know, it looks like we are not hearing companies coming in in any outsized way in trimming estimates for the next quarter coming up or next year. So I think the focus is going to return to earnings. And we start in mid-October with the next quarter's reports.

David Zervers, I realize that it can take a couple of days to fully digest, for the market to fully digest what the Fed has done and said. But I noticed in the minutes and couple hours after the 50 basis point cut came out, the tech sector of the S&P immediately shot higher and then gave that up and closed, you know, second lowest sector of the day. Consumer staples and utilities dropped immediately. What do you make of that? You know, I think the sector stuff is harder, even harder than just getting that market average right. So I wouldn't get, as you said in the opening there, I wouldn't get too caught up in the first hours of trade. That said, this is not the reaction that the Fed would like to see. I don't think this is the market reaction that those in the 50 basis camp wanted to see.

I don't think they would have thought the two-year note was up in yield. I think the market did not like this move. I think if they got a 50, they probably would have liked to hear that the Fed was in a hurry to get to neutral. So you got a really weird message, John. You got this message that we're not in a hurry to get anywhere. In fact, Jay sort of said that. There's nothing in the projections that suggests we're in a rush. But then today, we were in a rush. So it was, I thought it was a super confused message, and the market is acting in a super confused way. Okay, David, Barb, stay with us. Let's bring in CNBC senior economics reporter Steve Leisman, who was in the room during Chair Powell's news conference, asked the first question, as a matter of fact. Steve,

to my ear, a real shift in Powell's tone from the risks of inflation resurfacing to confidence and maybe even a determination of the Fed not to get behind here with this 50-point cut. What did you hear? I heard a pretty big paradigm shift in policy here, and I kind of disagree with my good friend David, with whom I have lots of agreement about music and mostly economics. But the Fed meeting this just barely expected 50 basis point cut expectation, cutting rates for the first time in four years down to this 475% to 5%. The key word, though, was recalibrate. He said it nine times and the Fed chair suggesting the Fed has more to go to get to a policy,

get policy to an appropriate place. You'll see that it's a process of recalibrating our policy stance away from where we had it a year ago when inflation was high and unemployment low to a place that's more appropriate given where we are now and where we expect to be. And that process will take place over time. And Powell thinks you're going to get it all. You're going to get the economy growing at a solid pace, inflation close to 2 percent, the labor market still be solid. So it's like an immaculate 50 basis point rate cut. And as part of the recalibration, markets are now still confidently pricing in 25 in November, followed by a 50 in December, total of 125 through the end of the year, John. So

put all that together. I did not see much of a change at all in the Fed Funds futures outlook. So I don't think they walk away from this meeting pessimistic about the outlook. I think they're just taking profits and maybe they come back tomorrow and say, wait a second, you're telling me we're going to be near 3% sometime next year? I think that's a buy for stocks. And I'm glad you counted how many times he said the word recalibrate because it gets back to, I think, a broader debate we've been seeing, which is this idea of normalization. And so before the meeting and the decision we got today, there had been a debate in the markets and among economists about are we seeing the economy go back to a pre-pandemic normal or is this actually the start of a steeper slowdown? And the message from Powell, to your point, was normalization.

And, yes, they cut 50 basis points, but they're continuing to let quantitative tightening happen here. And the thing he said is we're not going back to a world of ultra-low interest rates, which I thought was notable as well. We're not. We're not. But when you think about the word recalibration as well as normalization, if you need to recalibrate, you're not going to follow every tenth or hundredth of a point of inflation. You're not going to follow every tenth of a point in GDP. You've got to recalibrate to get the policy rate down to a place where you're in an appropriate place to respond to it. So to me, that spoke to me. The word recalibration speaks to me of less data dependence rather than more.

David Zervos, your response. You know, I just think it's really weird. It's really weird to have someone ask Jay Powell, you know, how do you explain to consumers that you've gone in this aggressive way, 50 basis points, and his answer is the economy's in a good place. That was strange. It's strange to say that we're not going to move quickly and nothing about the projections suggests we're in a rush. But we just did a 50, which we don't normally do. 50s are really unusual. 50s are reserved for

times of something super important happening. Three months ago, the projection was one cut this year. They just went to four cuts this year, 425s. That's a big change. Let's talk about it. I know we had two payrolls. I know we had two CPIs. And why was it necessary to do so much right here? You could have indicated that you're going to be on a faster path and open up 50s if you need them. But the whole rhetoric really was odd to me. And I'm usually a big fan. I'm usually kind of in the right mindset when I see it. I thought the message was one of the most confused.

And I'm kind of taking solace in the idea that the market is not doing what many would have thought it would have done on a 50 because the message was confused with the dots. Bob Durant, I want to go back to you here specifically on housing inflation, because that was one of those big question marks. One of the few I felt that that was still here when Fed Chair Powell said it's been slower coming down than we expected, taking maybe several years, you know, cycles, lease cycles versus one or two. How much of an issue do you think that is as you read the economic picture up against how you're choosing to invest? You know, I think it's still an issue because you see in the recent CPI prints, most of the inflation is still from this housing.

And, of course, housing, you know, we know so much of the existing home sales are being held back by people. The majority have mortgage rates under 5 percent. So rates will have to come down. And I think the 50 bps is a good start doing that because one thing Powell said, and I think Steve may be right, we are not as data dependent as we were in the past where we hung on every CPI print. But the Fed has said they know they're being restrictive and they haven't yet. They've seen the slowdown. They don't want to overdo it. You know, so I think in housing, we need to come down more before you start to see real movement, although we certainly saw the refi numbers this

past week up, I think, 24 percent and mortgage applications. So rates coming down do make a difference. And that could be where you start to see the movement, because I think that's really flummoxed people. Like, it should have come down before this. Every print, we wait. You know, it's been 18 months, and it hasn't happened. So, but I think that may be part of their calculation, you know, is in this 50 bps. So, but I think the market's unsettled. The market was discounting a lot.

We're at 21 times. So, you know, we've got to see more movement on the downside. But I think Powell knows he can wait. Things are, we're in good shape. Steve, I got a two-parter for you. The first is the fact that you had a dissent with Bowman. How notable or how significant is that? And then the second piece of this is the dot plot

and what that's signaling about slow and steady cuts over the next, call it, year and a half. So I think it's significant. By the way, it was the reason I thought the Fed would go 25, because I thought if they went 50 that Bowman would dissent. I thought they might get it, by the way, have gotten a dissent from Barkin as well. It's worth pointing out that it might have been a closer call than it appears in the sense that there are nine officials who want three cuts or less. If that's true, you might have gone 25, 25, 25 over the three meetings. Now one of them is not going to get, is going to do a quarter more than they wanted to do

if you do another quarter at each meeting here. So, sorry, another 50 at one of the meetings here. So that being the case, Powell kind of turned that around and said, look, everybody wants to cut. We're all on board with that. Just a kind of gentlemanly, in this case, womanly, gentlewomanly disagreement over the pace of cuts. As far as the dot plot, I think it's relatively friendly. We've seen the market and the Fed have disagreements before, much wider than we are now. The market's 125 through the end of the year. The Fed is 100. Next year, it starts to get a little

wider. But when it's next year, there's time to resolve those differences. You get down to, I guess it's 3-4 by the end of 2025, if I'm not mistaken. So that's a good amount of cutting. That's getting down to the neutral level. And so I think there's a lot for the market to like here if the Fed is going there. And I just want to underscore John's question about housing inflation, which I think is important. It's a bit of the Fed's ace in the hole. I think it's a reason why the Fed is pretty confident about inflation because it sees those housing numbers are going to come down. They have to end up eventually in the index. So it can feel pretty confident that it's got a third or more of the index on its side in terms of where inflation is going.

Time to recalibrate. Exactly. Word of the day. Gentlemen and gentlewoman, thank you. Steve, Barbara Barbara and David Zervos. All right. Now let's turn to senior markets commentator Mike Santoli with a look at what's next for global equity returns now that the Fed is in easing mode. Mike. Well, first, let's look at what's happened to U.S. equity returns since the Fed started hiking rates. Right. March of 2022 is when the first hike, you know, don't fight the Fed. That's the old line. Well, the market didn't fight the Fed for a while. We had a little bit of a bear market. But since then, look at how high we are. Basically, 12.5% annualized S&P 500 total returns since we first started hiking. So we've made it up once essentially yield started to peak, inflation peaked, and then the Fed pivoted toward neutral and easing mode at this point. So you still see the market kind of bumping up against this level.

You know, we went into this meeting. You got a bigger than anticipated hike from some people, but you still were at record highs at a level. It's been tough to crack for a couple of months now. Take a look at the historical trend of when central banks globally are in easing mode. Before today, global central banks, 50 percent of them, their last move was to cut rates, not to raise them. And so this goes back a long way, back to 1990. And Ned Davis Research says when this is the case, when a majority of central banks in the world are in easing mode, you do have above average future equity returns. Now, of course, there's always a big warning embedded in there, which is unless you have a deep recession within the next several

months, every single bit of analysis about how do markets do after Fed rate cuts is did we get a recession? Did we not get a recession? That's why it's so important as the market tries to sort out whether Powell's going to be correct in saying that this is insurance and this is just about preserving a good job market, or if it's the Fed possibly threatening to become further behind the curve if they are already. So, look, by the way, in terms of the debate, in terms of this is a very odd meeting, right? There's no August meeting. There's Jackson Hole. It's an unusually long stretch between meetings. And since the last one, we got two jarringly weak or at least frustratingly weak job reports. That had to inform the way the market went.

And, of course, you had 14 months at this high rate since the last hike. So, in other words, a lot of things were coming together to make for a catch-up type of a rate cut. Powell in the presser said had they had the previous July jobs report when they met last, they might have cut in July. So they're catching up to that. OK, Mike, so talking about what stocks tend to do outside of a recession once central banks go into easing mode. But I mean, since COVID, we've seen the death of many adages about the market, whether you're talking about inversions or whatnot. So are we more likely, perhaps, to see the death of another one here? You know, I would say if the global economy continues to expand and rates are going down,

I have a hard time seeing a path toward big trouble for stock markets globally, right? Those two things are happening together. That would mean this rule would hold, you know, unless there's some other kind of, you know, financial system rupture in the middle of it, like a 1998 type of financial panic or something like that. So I'm very much on board with the idea that we cannot just use the template of the past in this current cycle. By the way, there haven't been that many cycles. None of it rises to statistical significance. Right. So I do think you have to be a little humble about projecting based on the past as much as I try to do it. I love how you always pull history into the conversation. Mike Santoli, thank you.

We'll see you later this hour. Much more on the Fed decision and the impact on your money. That's ahead. After the break, tech investor Dan Niles explains the difference between a good rate cut and a bad rate cut and where he's putting his money to work in a post-cut world. Plus, global investing expert Mark Mobius said just the talk of a Fed rate cut has already impacted a number of emerging market countries. He's going to tell us the parts of the world that stand to benefit the most now that the Fed has acted. Overtime's back in two.

Welcome back to Overtime. Well, we got a supersized rate cut from the Federal Reserve, 50 basis points. So are there supersized gains ahead for tech? Joining us now is Dan Niles. He's the founder of Niles Investment Management. Dan, good to see you. So the Fed didn't cut at the last meeting. That seemed, felt like a close call at the time.

And then we had these revisions in the jobs numbers, which Powell mentioned. How much do you think that factored into 50 basis points now? And should people be alarmed? No, I don't think people need to be alarmed at all. It really comes down to why is the Fed cutting? And that's really simple. You've got CPI and PCE both at 2.5%. And before today, you had Fed funds rate at 5.25% to 5.5%. If you believe that the Fed's fund rate should be somewhere near the vicinity of wherever inflation is, plus, let's say, a percent, then you're talking about Fed's funds rate to be, quote, unquote, neutral, should be right around two and a half to three and a half. And at five and a quarter, you've obviously got a lot of room to move. So I'm not sort of caught. I put out something

earlier today. I'm not caught up on whether it's 25 or 50. You know, you're still going to end up at the same place, barring, obviously, a recession, which I don't think we're going to get, given the job picture looks pretty solid and we can get into that. Or inflation just reignites, which I do have a concern on much further out, but not currently. So specifically on tech here, big tech doesn't need to borrow money to operate, but their customers, a lot of them do, and smaller tech does. What's the impact of lower rates on tech? Well, I think on a relative basis, smaller companies have more floating rate debt. So those companies will do better. So stuff in the rustle. Also, when rates are up at 5 percent, that's a lot different picture in terms of how attractive a 3 percent dividend yield looks versus if the Fed's trying

to get to 3 percent. So I think big tech and we've been writing about this since, I think, July 11th. Our view was you were going to have some fundamental issues with big tech, which you did when they reported results. Let's not forget, big tech is down because Microsoft forward estimates went down after they reported. Google forward estimates went down after they reported. Amazon's forward estimates went down after they reported. That's why big tech is struggling. But other names where these rate cuts are really going to help them, that'll start to perform better. And so, as we've been saying for a them, that'll start to perform better. And so, as we've

been saying for a while, that's where we're looking. And if you look at it very simply, July 16th was the last S&P 500 peak. Since then, the Magnificent Seven are down 6%. The S&P is down about 1%. But the equal weighted S&P, those other 493 stocks, they're up 3%. And that's including the hit they're taking from those seven. So I think that's the playbook through year end. And you have another earnings season coming up. And so we'll have to see, OK, do earnings for the big tech companies go up or do some of them continue to go down?

In which case, you've got a much bigger problem. And certainly you've been on this show even in recent weeks and you basically said, look at the other 493 names in the S&P 500. What sectors specifically are catching your attention right now? And perhaps just as importantly, given the fact that we saw yields actually move higher on this move by the Fed today, is that just the market digesting here? Or is there a real possibility that you could continue to see that play out as the market now worries about the possibility of inflation? Yeah, it's to me, it's just a one day move. I'm not thinking about it because what was the market doing before this? Yields were just going down because people were

thinking we might get 50. What was the stock market doing before this? Yields were just going down because people were thinking we might get 50. What was the stock market doing before this? It was going straight up because we thought we were going to get 50. And so what did it do once we got the news? It's buy the rumor, sell the news. It did the exact opposite. So it's not going to surprise me if that reverses tomorrow. But you might have different leadership, which is what I'm more focused on. And ultimately, Fed rate cuts play into stock prices in two ways, right? They support earnings because you got lower borrowing costs. So that's the E. And then it supports multiples because rates are lower. So that supports, you put those two things together, higher P possible, higher earnings possible, stock market should be up. But the ones you want to maybe

go look at are the ones that benefit when rates go from 5% all the way to an endpoint of closer to 3%. And so that's what we're thinking through, especially when you combine it with valuations. Because, I mean, you can always make an argument that tech looks cheap if you look out far enough. But there's no way on absolute terms you can look at some of these growth rates and say that tech is cheap. And so from that angle, a lot of these other sectors that everybody's forgotten about ever since AI has been in a 24 by 7 use cycle for about two years, those sectors may be ones that people pay more attention to and therefore the valuations start to move higher in this. Got to get your thoughts on energy specifically. It's one of the only sectors in the S&P to finish today higher. We've seen crude oil prices perk back up in part because of

geopolitical dynamics in recent days. But in general, folks have been incredibly bearish on oil. And is this is this something you buy into right now? Yeah, I wrote about this about a week ago and said, you know, with West Texas Intermediate at 66 bucks and nearing oversold levels and the market continuing to go higher, something doesn't make sense, right? Either the economy's just fine, in which case oil is oversold, or oil is oversold because the market's going to roll over. And from my perspective, with 4.3% unemployment, more job openings than people unemployed, the Fed on a massive rate-cutting cycle of a couple of percent to get to where inflation is, it's hard for me to believe there's a recession, in which case oil at $66 was close to a no-brainer.

It wasn't quite oversold. And so we actually ended up in some energy. We liked the energy sector at that point. And it's rallied pretty nicely. The average, I believe, for Wex Texas Intermediate for the last year is, I think, 72 or 73. So it's gotten near there. But yeah, I think if the economy stays strong, it's hard for me to believe with the lack of investment in new capacity that energy doesn't continue to do well. And so, again, and it's super cheap relative to tech. And so I always think about it in terms of risk reward.

What's my margin of safety? When energy is hated, you've got a decent margin of safety. OK. Dan Niles, great to have you on. Thank you. Thank you. Thank you. Coming up, Mark Mobius breaks down the ripple effects of the Fed's cut around the world and where he's recommending investors put their money right now. Plus, former Boston Fed President Eric Rosengren is going to tell us where he thinks the Fed's

terminal rate will be and what he makes of the rare dissent from Fed Governor Bowman. We come right back. Now, with the dollar weakening, it might be time to start upping emerging markets. And if you're really intrepid in local currencies. Well, that was double line capital. Jeffrey Gundlach speaking earlier with Scott Wapner and closing ballots. Bring in Mark Mobius, chairman of Mobius Emerging Opportunities Fund. Mark, it's great to have you back on the show.

And that's exactly where I want to start with the Fed cutting by 50 basis points today. What is this now due to opportunities in emerging markets? Well, first of all, you've already seen a number of emerging market currencies strengthening against the U.S. dollar. Taiwan and Thailand up 10 percent or more against the U.S. dollar. Taiwan and Thailand up 10 percent or more against the U.S. dollar. So their currencies are getting stronger. And of course, they anticipated the rate cuts. And that's the reason why this happened, started to happen about two months ago. So that's the first thing. The second thing is that a lot of these emerging market stock markets are performing much, much better than the U.S. market.

If you look at Taiwan, if you look at India, you'll see that those markets have outperformed the S&P 500 over a five-year period. So I think you're going to see more and more of that in emerging markets as money flows back into these markets. You must remember, now that the tech trade is over and once everybody pays off their bills in Japan, the yen that they borrowed, they're going to be looking for a new risk. And of course, with interest rates lower in the U.S., the U.S. will be less and less attractive and you're going to see more money flowing overseas. Of course, not only in emerging markets, but in Europe as well. We talk a lot about buy the rumor, sell the news dynamics in the markets. The fact that we've already seen some of these moves in anticipation of the cut we

got today, how much more value is there to be extracted? Where would you be putting money to work based on that right now? That's a very good question, because if you look at value by the looks of India, for example, although I've been very bullish and still I'm bullish on India, you'll see that on a PE basis, it's pretty expensive. But we don't pay attention so much to PEs only. We look at growth as well. You've got to look at the E instead of the P or in combination with the P. So there's still lots of opportunity in India because of the growth.

But then you've got opportunities in Taiwan, Thailand, Indonesia, Korea. And, you know, a number of these countries are going to do very well. Interestingly enough, the so-called basket cases in terms of debt, Mexico, Brazil, South Africa, Turkey, these countries will begin to benefit from the cuts in interest rates because their debts, their U.S. dollar offshore debts will be easier to pay off. So their markets will begin to do better than they have been up to now. Mark, I thought I remembered you being more cautious on international markets ex-India the last time we talked. Has that shifted with this 50 basis point cut? Yes, definitely. I was very leery previously, except for India. But now I'm much more bullish because of these rate cuts and the

general dynamics of how money in America is going to be flowing outside. And just remember, the biggest pool of money is in the U.S. And if U.S. investors begin to get more interested in what's overseas, emerging markets are of course going to benefit. All right. Mark Mobius, thank you. Thank you. Well, time now for a CNBC News update with Pippa Stevens. Pippa. Hey, John, the FBI disrupted a Chinese cyber operation targeting critical infrastructure in the U.S. and other countries. FBI Director Christopher Wray said today that the operation, called Flax Typhoon, installed malicious software on thousands of internet-connected devices, including cameras and home and office routers. The FBI and Justice Department didn't

identify any of the targets. For the first time in nearly 30 years, the Teamsters union announced this afternoon it will not endorse a presidential candidate in the upcoming election. The Teamsters have endorsed the Democratic nominee in every presidential race since 1996. And for the first time since 2020, drug overdose deaths fell across the U.S. Provisional surveys from the CDC showed between April 2023 and 2024, overdose deaths declined by roughly 10.6 percent after years of double-digit increases. The head of the National Institute on Drug Abuse telling NPR, improvements in the availability and affordability of medical treatments for opioid use have worked. John and Morgan, back to you. All right, Pippa, thank you. Up next,

a check on the home front. Mike Santoli returns with a look at strong housing data out today and how the Fed's decision could change the real estate picture. And check out some of the stocks hitting record highs on this Fed day. Lenar, Bank of New York Mellon, KKR, MasterCard and PSEG are all on that list. Overtime, we'll be right back. Welcome back. Some good news on the housing front today. August saw a big increase in housing starts and building permits, and there could be more improvement ahead as rates start to retreat.

Well, let's bring in Mike Santoli on what to watch. Mike. Yeah, that is the hope, Morgan. You see there at the end of the chart that sharp jump from pretty depressed levels in housing starts and building permits was a response to already lower mortgage rates, of course, tied to the 10-year yield. Back to this sort of pre-pandemic general range, we'd mention, though, that that's not particularly strong. That was still kind of an under-building type mode. Probably want to get these above a 1.5 or $1.6 million annual rate. We'll see if that can happen. Of course, 10-year

yields went up today, so we'll see what happens with mortgage rates. Take a look at the stocks of the homebuilders relative to the home improvement retailers. Massive spread. Homebuilders are just raging higher. They have all the advantage in a scarcity-driven housing market. They can buy down rates and all the rest of it. But you're starting to see some upturn in the retailers.

Also, as noted earlier this week, Morgan, big jump in refinancing applications as well. That could fuel some home improvement activity. Yeah, and we get existing home sales tomorrow. We also get NAR earnings in this hour tomorrow, which will be interesting to watch, given the fact that we do have the Fed cutting. The comments from Jeff Gundlach were interesting to me, where he basically talked about the fact that housing could be a wild card because we don't really know what's going to happen now, whether this unlocks more

inventory, which actually could potentially put downward pressure on home prices, or whether you continue to see home prices move higher and rates were capping more of a move than what we've seen. It seems like it's anyone's guess. I think from a macroeconomic perspective, you kind of want to see just more turnover. So you want to see people feel unlocked from their low rate mortgages, get more supply on the market, start to clear a little more inventory and, of course, more building that would loosen up the market. Yeah, that probably wouldn't help home prices, but in general could probably be a big kickstart to the economy because it's really the marginal increase in housing activity that seems to drive GDP. All right. Mike Santoli, thank you.

So what is next for the Fed now that it has cut interest rates by 50 basis points? Well, former Boston Fed President Eric Rosengren is going to join us on how many more cuts he's expecting and whether we're now still on track for a soft landing. We'll be right back. Welcome back to Overtime. The Fed cutting interest rates by 50 basis points with broad support from the committee and joining us now with his reaction, former Boston Fed President Eric Rosengren. Great to have you, Eric. I found it especially interesting that Fed Chair Powell said the 50 basis point cut sends the message the Fed is determined not to get behind the curve. You see it that way? Well, I think it's taking an action that makes it more likely that we have a soft landing. I was a little surprised they went

with 50. I thought they were going to do 25. But I think he gave very good explanation for why they did 50 this meeting. It was really in two parts. The first part was that the employment data has been a good bit weaker since the July meeting. And had they known how much weaker the payroll employment would be, they might very well have acted back in July. And the second is he used the term recalibrate several times. And I think what that reflects is they've had more progress than they expected on inflation. The employment data has been a little bit weaker. And so they wanted to get the Fed funds to be less tight, to be more reflective of the current economic conditions that the economy is facing. So we haven't had a dissent from a Fed governor in almost 20 years. What we haven't had a dissent from a Fed

governor in almost 20 years. What does it mean that we got one from Bowman this time? Governor Bowman's been very hawkish for some time, and most of her public speeches have highlighted her concern that we continue to be over our 2 percent inflation target and that we should really see lots of evidence before we react too aggressively. So she wasn't dissenting against easing. She was dissenting against easing by 50 basis points. So I think it just highlights her own view that she'd like to move more gradually until she is very, very confident that we're going to hit our 2% inflation target. I want to step back and ask what is perhaps a very basic question,

and that is what does a 50 basis point cut do to help buoy a softening labor market? So it helps in a number of ways. As your last session just discussed, it does help on housing. So it helps both supply and demand it helps demand because some people who couldn't afford a house at 50 basis points higher now we'll have a lower interest rate that may make them be for particularly for first-time homebuyers able to buy into the house the second thing is as rates come down people aren't going to feel as locked in

which gives them flexibility to move and not feel the regret that, well, I'm leaving a very low interest rate mortgage. And even though this is a better house, it's just at such a high interest rate. Can we really afford this move? So I think it does help out in the housing market, particularly with improving the volume of home sales. Second, consumer loans and car loans have been quite high.

They moved up quite a bit when the Fed was moving their restrictive policy. And I think 50 basis points is going to start providing some relief on that. Finally, I would say that I think it gives more confidence to businesses that the Fed is not going to get behind the curve, that it's going to try to orchestrate a soft landing and they can have more confidence in their investment decisions going forward. what is now an easing cycle, or I guess an easing cycle towards normalization, against the fact that the Fed is continuing to let assets run off its balance sheet? So I think both of those are consistent with getting back to a more normalized Federal Reserve policy. So because inflation had gotten so high, the Fed became unusually restrictive. Those conditions are no longer necessary. So they are starting a cycle which, if the summary of economic projections is right, they're going to have two more 25 basis point easing at the November and December meeting,

and then probably four next year. So that just highlights that they are confident that they are now have inflation under control. And so we are going to be in an easing cycle. But he also made very clear that, you know, the speed at which we move to that is going to depend on economic conditions. In terms of the balance sheet, they've been normalizing the balance sheet for some time. And as he highlighted in the press conference, we're not quite there yet. The goal is to, again, we don't need the same level of accommodation on the balance sheet as we did when the economy was in a much weaker position.

But the balance sheet is a very slow-moving, the changes in the balance sheet have to be more slow-moving, because by intent, they're trying not to affect the economy by the shrinkage of the balance sheet. They want the primary tool to be the federal funds rate. Eric Rosengren, great to get your thoughts on this Fed day. Good talking with you. Well, a big name in the space industry is seeing out-of-this-world gains. Had to go there.

After winning a new NASA contract, we've got those details straight ahead. A massive move today for shares of Intuitive Machines, which catapulted nearly 40%. The space company winning NASA's Near Space Network contract to build lunar satellites for navigation and communications. This is infrastructure that will be especially important for the agency's Artemis Moon program. The contract has a maximum potential value of $4.8 billion over a base period of five years with an additional five-year option period. Now, Intuitive Machines, ticker LUNAR, L-U-N-R, made history earlier this year when its Odysseus spacecraft became the first commercial lander to successfully touch down on the moon. For more on Intuitive Machines and all things space, check out my podcast, Manifest Space. We've had a couple conversations with the folks over at Intuitive Machines just since the start of this year.

Yeah, Odysseus. I'm going to keep my eye on that. Well, up next, all the economic data and earnings reports that could move the market tomorrow, including what to expect from FedEx when it delivers results ex-fed during overtime. See what you did there, too. And ResMed, investors may be losing sleep today. The stock is the biggest loser in the S&P 500. Wolf Research downgrading the maker of CPAP machines to underperform from pure perform with $180 price target, implying more than 20% downside. Citing concerns that drugs like Ozempic and Monjaro could be

approved to treat sleep apnea. Shares finished down 5%. Don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We'll be right back. Welcome back to Overtime. It is time for your Wall Street look ahead. Investors will keep a close eye on more key economic data tomorrow when the August existing home sales and weekly jobless claims reports are released. On the earnings front, we'll get reads on discretionary spending when restaurant owners Darden and Cracker Barrel report. And in overtime, we'll get results from home builder

Lenar. Plus, from one Fed to another. Tomorrow, we also get earnings from FedEx right here on overtime. The shipping giant is seen as a bellwether for the global economy. So package volumes, pricing, the outlook for the holiday peak season, that will all be in focus. So, too, will cross-border shipments given the e-commerce surge out of China and Asia Pacific. Think Xi'an, Taimu, et cetera. Well, FedEx has also been cutting costs. It's been parking planes. So how are those savings going? How is integration of the ground and express networks into one going?

Also, FedEx's contract with the U.S. Postal Service winds down this month. UPS took that over. So what does that mean for business and also possibly more cost savings? The other thing to watch, the freight segment. FedEx said in June it was reviewing options for possible divestment as investors look for a broader freight recovery. So what has the company decided here. I'd also note, John, it's been a good year after several not so good years for FedEx. Stocks up double digit percentages since the start of the year. And it's been a major bifurcation between that and UPS, which has underperformed the market down a similar amount, double digit percentage since the start of the year. We've got primetime coming up Q4 with the holiday shopping season. Now, reflecting on today's session, this big anticipation of what the Fed decision was going to be, we got 50 basis points and the market is still reacting. Usually you don't get all the

reaction at once, but we've got this, you know, pop higher in the Dow and the S&P, et cetera, especially in the Russell. The Russell, the small caps just barely eked out again, if you can even call it that. It's like flat for the day. So I'm very curious what happens tomorrow. Yeah, and we saw yields tick higher after initially moving lower on the decision, and you saw the dollar strengthen after it initially weakened. So the market is very much digesting the results that we got here and the commentary from Powell, not to mention a dot plot that basically signals more cuts through the next year and a half. Very much looking forward to the banks beginning to report in about three and a half weeks. Mike

Santelli also mentioned the larger banks and how they might be affected by the rate cut. We've got our eye on net interest income. Yeah, regional banks at least initially popped as well in the decision. Well, that does it for us here at Overtime. Yeah, lots more market news to come this week here on CNBC.