Managing Editor’s Note: Our colleague Jeff Brown has been following the rise of artificial intelligence long before the rest of the high-tech industry caught on.
So it might be a surprise that he’s sounding the alarm on a coming AI crash…
As early as November 30, certain popular AI stocks could begin to plummet 50% or more.
This Wednesday, November 20, at 8 p.m. ET, Jeff will get into all the details. He’ll share a strategy he’s developed to take advantage of the coming chaos… and even name what he believes is AI’s most toxic ticker.
Simply go right here to automatically sign up to attend the briefing on Wednesday.
The nation’s most prominent central banker might be the biggest loser in the election.
Federal Reserve Chair Jerome Powell took the spotlight just after Donald Trump was declared president-elect earlier this month.
He held a press conference after the Fed cut interest rates by another 0.25%.
Trump originally picked Powell to lead the Fed during his first term as president. But in recent years, he has been the frequent target of Trump’s criticisms.
So reporters asked Powell about stepping aside if Trump requests it.
His response was straightforward: “No.”
Yet in addition to the politics surrounding his job, Powell faces a nigh-impossible task ahead.
And the implications of all this could hand traders a challenging outlook… as well as potential opportunity…
The Fed’s Delicate Balancing Act
The Fed has two major responsibilities. It needs to maintain price stability and a strong labor market. It’s a delicate balancing act to get these two goals just right.
Interest rate cuts stimulate the economy and boost the labor market. But they also risk inflation getting out of control.
On the flip side, keeping rates high will slow the economy and fight inflation. Yet it also risks damage to the labor market and can lead to a recession.
The Fed started raising interest rates in 2022 – and ultimately took them to the highest level in over 20 years. You can see that in the chart below.
That was in response to high inflation from the pandemic and resulting economic stimulus.
But now the Fed wants to cut rates quickly since inflation has mostly come back under control.
That’s because the Fed has a history of leaving interest rates too high for too long… tipping the economy into recession.
The Fed has cut rates by a total of 0.75% so far over its last two meetings. It wants to support the economy without inflation shooting higher.
But the outlook for more rate cuts is becoming cloudy. That’s why Powell’s job is about to get much tougher…
|
Free Trading Resources Have you checked out Larry’s free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out. |
An Inflation Comeback
The Fed is stuck between a rock and a hard place.
There are clear signs that the labor market is weakening. The October payrolls report saw just 12,000 new jobs. That was a huge miss versus estimates – and was the smallest gain in nearly four years.
But at the same time, progress on inflation is suddenly stalling out.
The most recent Consumer Price Index (CPI) report shows that core inflation is moving sideways.
The core measure strips out food and energy prices, which can be volatile from month to month. The core figure aims to give a better sense of underlying inflation trends.
Core CPI began rising in 2021 and peaked at an annual gain of 6.6% in 2022. Since then, the core measure fell to 3.2% in July.
But the core measure has stopped moving lower. It’s actually gaining slightly, as you can see below.
Plus, core inflation is still well above the Fed’s 2% inflation target.
And here’s the real challenge…
Trump’s campaign promises include tariffs, tax cuts, and more stimulus spending. Economists project that all of those plans would push inflation higher.
Accelerating inflation and a worsening labor market are putting the Fed in a tough spot.
It likely won’t be able to cut rates at its desired pace if inflation kicks off once more. Yet holding rates this high may tip the economy into a downward slide.
This uncertainty is why you should prepare for volatility ahead. That includes tossing out the playbook of the last two years.
The S&P 500’s relentless march higher has conditioned investors to buy every dip. After all, that’s paid off well since October 2022.
But I suspect that strategy will result in a lot more pain in the months (and potentially years) ahead.
That’s why I’d recommend taking a different route… If we have a “famine” in market returns ahead, then options are my favorite way to play it.
Options let us profit whether the market is going up… sideways… or down.
And they allow us to be nimble while controlling our risk – which can be ideal when the market gets choppy.
If you’re new to options, then I’d recommend checking out One Ticker Trader. It’s a great way to start learning.
I recently recorded a presentation to explain how options can be a powerful tool during uncertain times… You can find that here with all the details – and a special offer if you’d like to give One Ticker Trader a try.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict