We continue to see the steep drop from Wed (-3%) as a "buy the dip" moment. Fundamentals remain strong. Array ( [cookie] => ddccb0-b1d306-fef075-a32770-03bf5c [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 9091 [user_id] => [reason] => Usage under limits [method] => ) 1 and can accesss 1

VIDEO: We discuss how the Fed remains dovish and fundamentals remain strong, thus, we are buying this deep dip.

Please click below to view our Macro Minute (duration: 6:46)

We continue to view the sell-off triggered on Wednesday this week as a “buy the dip” moment. The fundamental backdrop for stocks remains positive and while there are some needed ripple effects from the sell-off, we expect this “dip to be bought”:

• I want to start by highlighting 3 specific comments from Fed Chair Powell Wednesday.

• Powell (why more hesitant in 2025): “I can tell you that might be the single biggest factor is inflation has once again underperformed relative to expectations.”
• Powell on labor inflation (not contributing): “Look at the labor market. It’s it is cooler by so many measures, now, modestly cooler than it was in 2019 a year, when inflation was well under 2% so it’s not a source of inflationary pressures”
• Powell on Trump impact on “dot plots”: “Some people did take a very preliminary step to start to incorporate highly conditional estimates of economic effects of policy into their forecasts in this meeting, some people said they didn’t do so, some people didn’t say whether they did or not”
• On the inflation underperforming, this is something we have discussed in the past. The fact that inflation is “underperforming” is due to 3 components:
  – Core CPI excess         +1.31%
  – 3 categories:
  – Shelter                  +0.87
  – Auto insurance    +0.31
  – Recreation           +0.05
  – Total 3                     +1.23
• The above highlights core inflation is elevated mainly from shelter and auto insurance. Not labor inflation (as Powell notes). And does high fed funds actually contain these 2 components? We know shelter is a matter of time, due to the lags of market prices vs impact on CPI. And auto insurance is already cooling from elevated levels and does not require further Fed intervention.
• And the statement about Trump policies impacting FOMC forecasts is unusual. After all, this is the opposite of data dependence. This is assuming Trump policies of tariffs and deportations will cause inflation.
• And this is also a paradox. Consider this statement by Trump:
  – “I won on the border, and I won on groceries,” the president-elect said in an interview on NBC News’ “Meet the Press.”
• Thus, if Trump won on inflation (being a problem), would he actually pursue policies that are inflationary? Thus, we see the action by some Fed FOMC members as caution about Trump-driven inflation as paradoxical (and essentially wrong).
• Additionally, we think stocks are oversold for multiple reasons, including the VIX spike we noted. This 74% spike is the second highest single day surge ever:
  – Date VIX %1D
  – 2/5/2018 37 116%
  – 12/18/2024 28 74%
  – 8/5/2024 39 65%
  – 2/27/2007 18 64%
  – 1/27/2021 37 62%
• What is notable is how quickly markets recover from these sell-offs:
  – 3 of 4 times, the S&P 500 fully recover within a week
  – Jan 2021, Feb 2018, Aug 2024.
  – median 3M gain is 9%, positive 4 of 4 times
• In 2018, the S&P 500 recovered all of its losses by the 9th trading day (see below). Notably, the Fed was hawkish in 2018 and there was an industrial earnings recession that was just starting. This is arguably a far different context today. But the broader points is this massive surge in VIX is showing a full-on “buy the dip” moment
• Currently, Fed Funds futures sees 1 additional cut in 2025. This is down from 2-3 priced into markets prior to the Dec FOMC rate decision. We believe that it would actually better for the Fed to make fewer cuts in 2025. We have discussed this previously, but the factors are:
  – Fed needs to get to “Neutral”
  – Fed funds currently 4.50%
  – Neutral rate is 2.50% to 3.00%
  – Still need 6 to 8 cuts (25bp each)
  – Fewer cuts in 2025 = longer cutting cycle

Bottom line: This is a “buy the dip” moment

This was a painful week, but the fundamentals did not change. This is why we see this as a buy the dip moment.

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Key incoming data December:

• 12/2 9:45 AM ET: Nov F S&P Global Manufacturing PMI Tame
• 12/2 10:00 AM ET: Nov ISM Manufacturing PMI Tame
• 12/3 10:00 AM ET: Oct JOLTS Job Openings Tame
• 12/4 9:45 AM ET: Nov F S&P Global Services PMI Tame
• 12/4 10:00 AM ET: Nov ISM Services PMI Tame
• 12/4 10:00 AM ET: Oct F Durable Goods Orders Tame
• 12/4 2:00 PM ET:  Fed Releases Beige Book Dovish
• 12/5 8:30 AM ET: Oct Trade Balance Tame
• 12/6 8:30 AM ET: Nov Non-Farm Payrolls Tame
• 12/6 9:00 AM ET: Nov F Manheim Used vehicle index Mixed
• 12/6 10:00 AM ET: Dec P U. Mich. Sentiment and Inflation Expectation Tame
• 12/9 11:00 AM ET: Nov NY Fed 1yr Inf Exp Tame
• 12/10 6:00 AM ET: Nov Small Business Optimism Survey Tame
• 12/10 8:30 AM ET: 3Q F Non-Farm Productivity Tame
• 12/10 8:30 AM ET: 3Q F Unit Labor Costs Tame
• 12/11 8:30 AM ET: Nov CPI Tame
• 12/12 8:30 AM ET: Nov PPI Mixed
• 12/16 8:30 AM ET: Dec Empire Manufacturing Survey Tame
• 12/16 9:45 AM ET: Dec P S&P Global Manufacturing PMI Tame
• 12/16 9:45 AM ET: Dec p S&P Global Services PMI Tame
• 12/17 8:30 AM ET: Nov Retail Sales Data Tame
• 12/17 9:00 AM ET: Dec P Manheim Used vehicle index Tame
• 12/17 10:00 AM ET: Dec NAHB Housing Market Index Tame
• 12/18 2:00 PM ET: Dec FOMC Decision Hawkish
• 12/19 8:30 AM ET: 3Q T 2024 GDP Tame
• 12/19 8:30 AM ET: Dec Philly Fed Business Outlook Tame
• 12/19 10:00 AM ET: Nov Existing Home Sales Tame
• 12/19 4:00 PM ET: Oct Net TIC Flows Tame
• 12/20 8:30 AM ET: Nov PCE Deflator
• 12/20 10:00 AM ET: Dec F U. Mich. Sentiment and Inflation Expectation
• 12/23 8:30 AM ET: Nov Chicago Fed Nat Activity Index
• 12/23 10:00 AM ET: Dec Conference Board Consumer Confidence
• 12/24 10:00 AM ET: Nov New Home Sales
• 12/24 10:00 AM ET: Nov P Durable Goods Orders
• 12/30 10:30 AM ET: Dec Dallas Fed Manuf. Activity Survey
• 12/31 9:00 AM ET: Oct S&P CoreLogic CS home price

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: