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Jeremy Owens: Hello and welcome to On Watch by MarketWatch. I’m Jeremy Owens. As the second half of the year began, we told you it could be the most consequential period for our post-pandemic economy, and we weren’t wrong. So far, with the Fed cutting interest rates amid some confusing economic readings, we are set up for even more drama as we end the year. To help you figure out how to navigate the end of 2024 and what you need to watch for, today, we welcome two of our most esteemed MarketWatch guests. Editor-in-Chief Mark DeCambre joins us for our quarterly Mark on the Markets check-in, and economics editor Greg Robb breaks down the latest jobs report and what it means for the Federal Reserve. Plus, we’ll take a quick look at the news stories we are watching right now and how they’ll affect your wallet. First, let’s talk about the markets.
When we last spoke with Mark DeCambre at the midpoint of 2024, he outlined three things that would determine how this year is remembered, the Federal Reserve, interest rates, and AI-influenced corporate earnings. All of that was key in the third quarter when markets increased yet again and continued to hit record highs, and a declining labor market forcing the Fed’s hand on rate cuts. So what now? Well, there is the one big unknown hanging over the market and the entire US, the presidential election. And just after that’s complete, we’ll have yet another fed meeting right before the holiday shopping season. So we welcome Mark in for an update on what to watch as we head into the final three months of the year.
Well, Mark, I went back and listened to our interview from three months ago as we tried to set everybody up for what was going to happen in the second half of the year. And we talked about a lot of the most important things that have happened, including the Fed, and would it cut rates? And would it look more at the job market than inflation? All that came to pass, and the market just kept ripping higher. We had another strong third quarter. So now, my question is, what’s left? What are we looking for through the end of the year, and how is it going to affect the markets?
Mark DeCambre: There’s a lot to unpack there, Jeremy. We certainly need to still process the Fed and the Fed’s moves to cut interest rates. They’ve more or less signaled that the job on inflation, price stability, one of their key mandates, is done. Let’s not say conquered, but certainly they feel good about it.
Jeremy Owens: Yeah. And what they said was another 50 basis points by the end of the year is their goal. They have two more meetings before the end of the year, and they could go 25 and 25. They could do another 50 basis point cut. There’s a lot of questions there about exactly how they get to their goal.
Mark DeCambre: Right. That’s the big question. And how and whether the markets will continue to respond to that favorably, we shall see. Certainly, decreasing borrowing costs should serve as a favorable environment for markets, market participants, investors. However, we’ve also got an election to think about too.
Jeremy Owens: We ended, last time we’d spoke, on the election and how much that presents uncertainty, which markets typically don’t like. And we’re now, as this airs less than a month away from the November election, what are you looking for in terms of the most important thing that’s going to be decided by this election?
Mark DeCambre: What our reporting is showing is that there’s certainly a lot of questions around Harris trades versus Trump trades and how investors are going to position themselves in either scenario. And you can quibble over whether or not there’s going to be any real significant policy changes as a function of one administration versus the other, but I’m not sure how the market is going to react, which is why this is going to be super interesting to behold, and I think there’s certainly a lot of questions about the outcome even, and whether or not we’ll have a decision on that election day, whether or not it’ll take a little while before that becomes clearer to voters who’s won.
Beyond the presidential election, there are maybe as big, maybe bigger concerns around the Senate and congressional races. You can’t do a lot as a president if you don’t have sort of political party alignment, and I think there’s expectation that there’ll be logjam either way, or slight margins, which could be favorable to investors, could be favorable to markets, which like logjam, they like indecision. It means you won’t see a lot of change in terms of things like tax policy, corporate tax policy, which has certainly become much talked about.
Jeremy Owens: Yeah, I feel like that’s what we’ve talked about the most when it comes to economy and finance, Mark. It is time to address the expiring Trump tax cuts and really set the agenda for tax policy moving forward. And really whatever president and Congress we put in this election, that is going to be the thing they do that likely has the greatest effect on our economy and our personal finances and our corporate finances. Trump did cut corporate taxes, and Kamala Harris has said she would like to raise them again. And we’ve talked before about how profit margins are the reason market’s at a record right now. They have increased the profit margin for the S&P 500. A lot of that is helped by the cut corporate taxes. If we’re looking at this from a market’s perspective, that could be the most important thing moving forward once we figure out what happened in the election.
Mark DeCambre: Yeah. The market outcome will be anyone’s guess. We know that when corporate tax cuts were implemented during Trump’s administration, the market was basically off to the races, certainly in the immediate term, once those policies were put into place. So we know what impact those can have, but it’s just a matter of what exactly will we see in terms of policy. We know what they’re going to promote. The reality may be a different thing.
Jeremy Owens: Voters tend to vote with their wallet, and we’ve seen consumer confidence take a huge dip in August. We’ve seen the job market fall off to the point that the Fed felt the need to act. How much is this job market and the direction it’s going going to affect the upcoming election? And where do we see that job market kind of moving at this point?
Mark DeCambre: Yeah, I have no idea how it’s going to impact the upcoming election, but certainly something to watch. The job market, as it stands now, in the grand scheme of things, not terrible, four plus percent unemployment against the backdrop of an inflation fight that the Fed had to win and that they were very focused on winning. They knew that potentially, they could really do damage to the labor market and were willing to risk it to get to price stability. And to be where we are now is pretty impressive.
Jeremy Owens: Yeah, set up for a soft landing, which is exactly what the Fed was looking for.
Mark DeCambre: Yeah. At this point, I don’t even think it’s a soft landing. I think it’s no landing. GDP is really strong, and we’re not seeing the type of weakness that you would see in a soft landing. The labor market continues to be strong as well. Even with unemployment a touch above 4%, that’s really strong historically. Obviously, it’s come up from where we were back at around 3.8 or so, but it’s still healthy, and all that paints a pretty healthy picture for the macro economy.
Jeremy Owens: How would you suggest our listeners position themselves for further cuts and kind of ingest what’s happening in the greater economy right now and take it to their own personal lives?
Mark DeCambre: That’s a great question. And I think interest rate cuts like we’ve seen thus far, 50 basis points, right direction for folks who feel certainly hemmed in because interest rates have been high. But at the end of the day, it’s still fairly incremental. Even two full percentage points of cuts are going to probably feel incremental to folks who are looking at 21% APRs. You’re still talking about monthly payments that are significant depending on your balance. Mortgages, similarly, the cuts are good directionally. They’re not game changers for anyone. Certainly, what the Fed is trying to do is normalize policy. Market conditions have been tight in their view, so they want to make them less restrictive. So that’s the thing to think about. Interest rates will come down. But during that period, what the average person needs to really do is focus on paying down your principal, tackling those pieces of it. If you’re in a position to, trying to eat away your principal is going to be a lot more beneficial than interest rate moves.
But there’s certainly a lot of work for the average person to really think about in terms of interest rates. The key thing about interest rates is that it doesn’t matter to somebody who’s got a really strong credit score, right? So again, if you work on cutting down principle to the extent you can, getting in a better position puts you in a better position to actually negotiate better terms with your bank, with your lenders than an interest rate.
Jeremy Owens: Right. And the big thing to kind of watch for is if we start to see the housing market reinvigorate, we had lower mortgage rates, maybe car purchases as well. Obviously, consumer spending has been a huge part of the economy, staying above water for the past few years, but we’ve done it without a lot of those large purchases. It seems like consumers have been paying more on travel and services and going out to eat, and we might see as interest rates come down, the chance to pay off some of those debts you’ve had with a lower APR, get rid of some of that principle, but also you may look to make a bigger purchase, which means so much more to the economy than small purchases.
Mark DeCambre: Yeah, we’ll see how things play out. And the housing market, we’ll be watching that pretty closely. Rates had come down in the lead up to the fed cut, but interest rates alone aren’t the only issue for the housing market, right? Inventories are tight, so that may be a bigger determining factor for folks thinking about purchasing a house and the cost of housing than rates, at least at first blush.
Jeremy Owens: Looking through to the end of the year, what we really see is the election, of course, but also where these interest rate cuts are having the greatest effect if they manage to help the job market at all, if they manage to boost the housing market, and how consumers are reacting to the lower interest rates as they continue to get lower. We’ll be back at the end of the year to talk through what we’ve seen and how to position yourself for 2025. Thank you so much for joining us today, Mark.
Mark DeCambre: Thanks for having me.
Jeremy Owens: We’re going to take a quick break. Coming up, a deeper dive into the Fed and the labor market. Stay with us. Welcome back to On Watch by MarketWatch. Before the break, we talked with Editor-in-Chief, Mark DeCambre. Now, we welcome economics editor Greg Robb for his first visit since the fed cut rates last month. Now, when Greg and I last spoke, he disagreed with the idea that the federal Reserve would cut 50 basis points off interest rates as a result of a declining labor market, but the Fed did just that in hopes of staving off a larger downturn. Now, we have the September jobs numbers, which looked really good actually, even though the cut didn’t come until too late in the month to make much of a difference. So what does the Fed do now after acting forcefully, and then finding out maybe they didn’t have to? Well, lucky for us, Greg is around to answer that question.
Well, Greg, this is the first time we’ve had you on since the Fed decided to cut rates and actually went through with it. And the biggest news since then has been the jobs report. Now, the Fed made its move because it was worried about jobs, and then we get this September report that was just a blowout. What’s happening?
Greg Robb: Well, first of all, it’s really good news, right? We were really worried about the labor market. In history, since the 70s and the 60s, and I think you probably could throw in the 50s too, the labor market would start to weaken, and would always get to a point. And once it hit that point, that weakness would really accelerate. So that’s what we were really worried about because we had seen the labor market start to soften over the last year, and it was really approaching that point of just really kind of a disaster like a recession. So the September numbers were a pleasant surprise. It really took that kind of fear off the table for the short term. We have to take everything with a grain of salt, but it really was good news for the economy.
Jeremy Owens: I’m struggling right now with every jobs report of how much to actually believe it, Greg. We had the massive revision of more than 800,000 jobs over a year long period. We continue to see revisions that are bouncing around all over the place. And as we’ve talked about before, it’s very hard, when the economy is in motion, to get this data. And that’s what I’m a little worried about here, is that we get overexcited about the September report that had revisions that might push it higher as we go into an October report that could be rough based on Helene and some other things.
Greg Robb: The history of the jobs report and the unemployment report is it doesn’t really move around all that much. We don’t get a report that just looks like this, and then the next month, it’ll look like a catastrophe. These numbers don’t move that way. So I think that most people really think that we’ve pulled back from the brink here. Goldman Sachs reduced their recession fears to just normal now. Looks like the economy can get into next year in a pretty good pace. So you can worry about the numbers a little bit, but I think that you can really overdo that.
Jeremy Owens: Yeah, and that’s where the Fed is now. They made the big half point rate cut. You got to ask Jerome Powell about that. We have not talked to you since. I know when we last spoke with you, you said you would be surprised by a half point rate cut instead of a 25 basis point cut. Were you surprised when it actually went down? And what does it mean as we move forward?
Greg Robb: Oh yeah, that was a big surprise. As a reporter, I really pride myself in reading what the Fed say out loud, what they say in public, and read their speeches and sometimes their body language. And going into the September meeting, all of the officials were talking about a quarter point move, so it was a surprise to me. It was a dramatic move. And so you’re like, why the drama? I tried to ask Powell that in some way, shape, or form about that. It looked like Powell wanted to do it. They’ve had a time kind of trying to explain it to everybody. I think it’s been pretty confusing. I think a lot of people think, okay, it’s good. 50 is good. They’re starting this process of bringing rates down. But already, right away now, they’re just talking about slowing down. They’re talking about going 25. And with these numbers, the market always swings to the other side of the boat.
Jeremy Owens: Yeah, it did seem like a panic move, and I think that the panic was from the labor market. And now, we get a good jobs report that shows maybe they shouldn’t have been panicked. It just seems like there’s a lot of conflicting signals, Greg.
Greg Robb: The Fed, we don’t pay them to read crystal balls. They’re not such great prognosticators. And nobody is because human, and that’s fine. When we get the data, they adjust. It does show that we’re in this economy coming out of the pandemic. That doesn’t have the same rhyme or reason as history. We have to watch things kind of closely. All those things are true, and they’re true in spades now. But just keeping an eye on the fundamental course of the economy, we’re expecting growth well above 2% in the third quarter. And then we have the fourth quarter, which includes Christmas, so that’s usually a good quarter. So the economy has some momentum. We’ve been talking about a recession now for two plus years that people just kept saying it was right around the corner. So it’s kind of good news that the economy kind of has that resiliency.
Jeremy Owens: Yeah. And you mentioned fourth quarter. We’re in the fourth quarter now. What are you really looking at over the next few months into the end of the year that’s going to move the needle at all, that’s going to be what you’re really paying attention to in your reporting?
Greg Robb: Well, the biggest thing coming on is, well, we’re going to have the election. And then right away, we’re going to want to know exactly what the new economic policies of the new president are. The candidates have laid out their proposals. It’s kind of worrisome in a lot of ways for the Fed because both parties really want to spend money. They’ve really promised a lot to everyone, and that’s a new phase that we’re going through in the country where there’s no talk about kind of balanced budgets. For a while, that was the religion. And in some ways, that hurt us back in 2008 when a balanced budget was all everybody could think about. But I think we’re now on the opposite side of that. Everybody’s just spending a lot of money hand over fist. In long-term, it’s not good for the economy. We are a debtor nation. So turning that around, it’s going to be tricky. Presidents are going to face these challenges.
Jeremy Owens: And because that government spending has been a big part of this, Greg. The government jobs in the jobs report has been one of just about three or four categories that has shown real strong growth. Now, that’s not all federal government. That’s state and local as well, but definitely government spending has been a big part of what has kept this economy rolling.
Greg Robb: Yeah, that’s an interesting point. I think it has a bigger part to play than most people had thought. But the phrase that always comes to mind is you do a lot of work while the sun is shining. So the sun has been shining on the economy now for the last four years, for sure, and that’s the time we should have been bringing down the deficit, kind of being at least smart about our money, and we haven’t. And we’re coming into a new administrations that both are sort of not promising to do any of that hard work that needs to be done. So we’ll see how it goes, but a lot of people are worried about it, I would say.
Jeremy Owens: What should we be watching to know what’s going to happen? And you mentioned the election. The next fed meeting is two days after the election, and so that will definitely color what happens in that.
Greg Robb: Well, that’s a tricky one. I think they’re going to really, really, really keep quiet about it. They’re going to let the administration play their cards before they talk. So I don’t think the Fed will talk too much about the election. They’ll just focus on where things are now, an additional cut to the one they did in November, and then another one in December, and then see what talk is coming out of the administration, how the economy is doing, maybe pause later. The biggest criticism I hear of the Fed right now is that they’re just not taking that into account. They’re putting out these forecasts that they’re going to be able to cut rates down to 3%. And some economists just think the way the fiscal spending is going to go, that the Fed’s going to have to keep rates at 4% and won’t be able to do that. So they want the Fed to be a little bit more open to that possibility, but the Fed keeps saying they don’t want to talk about politics, they don’t want to talk about things that haven’t happened, and they’re just going to wait and see.
Jeremy Owens: Yeah. When you say wait and see, one of the things I love to do when I get the chance to pick your brain, Greg, is ask you what data you’re really going to be looking at between now and the next time we talk, well, probably early next year, to really see how the economy is going and what kind of numbers you’re looking for.
Greg Robb: One of my favorite things to look at these days is it is a new economy coming out of the pandemic and revenge spending or people were kind of live now, because tomorrow, we never know if there’s going to be another virus or something. I think that really impacted the economy, how people like to do things. You can just tell when you talk to people, weddings are big. And when families get together, everybody wants them to be super nice. And so people are spending a lot more time and care in our lives, and that’s really helped the economy, this sort of sense of we really focus now, more than I think we have been, on the quality of our lives and the quality of our times together, and that is helping the economy in a lot of ways.
And you always think, will that change? And the first quarter is that time of the year when there’s not a lot of stuff going on. I have a February birthday, and so my party has always been the quiet party. In my reading, I want to see those months, January, February, March of next year, to see how the economy does. Because once we get into the summer, that’s when people start really kind of traveling, and that’s really helped the economy over the last couple of years.
Jeremy Owens: It’s funny the government did not pay down some of his debts post pandemic when things were going really good. It’s kind of the same with the American consumer that got a lot of stimulus payments, but now are getting to a point where they don’t have that anymore. And it seems like both the consumer and the government are dealing with what we’ve done over the past four years and what we need to do moving forward.
Greg Robb: A lot of economists have said, oh, that there was this sort of excess savings that people had, that’s what they called it, and that people had that in their bank account and that made them feel good. I don’t think that’s what really happened. I think during the pandemic, people that had too many credit cards and too much going on, that was an amazing opportunity to kind of right size. And I think a lot of people did that, and that gave them the space to approach their credit cards in a different way and their spending in a different way. And I don’t think that kind of goes away if you kind of are rational about it. Maybe you can save that a little bit. I think the economy has been okay for most people. I’m not talking about people that are on the low income spending.
You always have to say that it’s a really kind of tough place to be in America if you don’t make a lot of money and your wages low. We have to always keep that in mind, and the government should be doing things to give people a hand up. But when we look at the broad indications of the economy, I think it’s that spending that people do that keeps things going.
Jeremy Owens: Well, hopefully we can keep seeing that through the end of the year and this economy keeps us strong. Thanks so much for joining us, Greg.
Greg Robb: Oh, my pleasure. Thanks for having me.
Jeremy Owens: Before we go, it’s time for what we are watching, a look at the news you need to know for the rest of the week and beyond. Tesla is planning to hold its delayed robo-taxi event Thursday evening. So before it begins, let me issue a warning to everyone. In case you’ve forgotten, Elon Musk held a similar event in April, 2019 called Autonomy Day, in which he said that cars consumers were then buying could magically turn into robo-taxis by the end of 2020. Now, obviously that didn’t happen, and Tesla is still not close to making it happen, even as other companies’ robo-taxi services are rolling in major cities across the us. So whatever you may hear from Musk this time around, please take it with a huge grain of salt, maybe even a whole bag.
As the Fed rapidly raised interest rates to combat inflation, one of the biggest effects was felt at smaller banks that had not planned well for that possibility. So what will the effect on banks, both small and large, be this time? We’ll begin to get that answer Friday as big banks kick off earnings. JP Morgan and Wells Fargo will be among the large financial institutions to report at the end of this week. Many more will follow early next week. Even more so than other quarters, forecasts will be much more closely watched than results this earnings season. Companies are proving or disproving their annual forecast they may have released earlier this year and trying to tell investors what they can expect during the holidays. Next week will be a big one here at MarketWatch as we begin to release our annual MarketWatch 50 list of the most influential people in markets. We’ll be discussing that list and talking to two people who are on it next week, so come back next Thursday for more.
And that’s it for this episode. Thanks to Mark DeCambre and Greg Robb. To keep following the latest on markets and the economy, head to marketwatch.com. You can subscribe to the show wherever you get your podcasts, and please do. If you like what you heard, please leave us a rating or review. It really helps others discover the show. And let us know what you want to hear from us. You can reach us at onatch@marketwatch.com. The show is hosted by me, Jeremy Owens, and produced by Alexis Moore. Isaac Gaines mixed this episode. Melissa Haggerty is the executive producer. We’ll be back next week. And until then, we’ll be watching.
