We’ve also got a look at Nike’s CEO change, the Fed’s rate cut, and other interesting topics for investors.
In this podcast, Motley Fool analysts Ron Gross and Asit Sharma and host Dylan Lewis discuss:
- The Fed’s rate cut, the market’s reaction, and what history has to say about cuts this dramatic.
- Nike‘s CEO swap, what went wrong for John Donahoe, and whether Elliot Hill has what it takes to turn the company around.
- A new partnership masking bad results from Olive Garden.
- FedEx‘s signals about shipping trends.
- Two stocks worth watching: D.R. Horton and Intel.
Reddit hit the market in 2024, but it’s been around as the front page of the internet for almost 20 years. At the 19:50 mark, CEO Steve Huffman joined us to talk through how the company stands out in the world of social media with its focus on community, where it has been, and where it is heading.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our beginner’s guide to investing in stocks.
Dylan Lewis: Rates are down and markets are up. Motley Fool Money starts now. It’s the Motley Fool Money Radio Show. I’m Dylan Lewis. Joining me over the airwaves. Motley Fool senior analysts Ron Gross and Asit Sharma. Fools. Great to have you both here.
Ron Gross: How you doing, Dylan?
Asit Sharma: Great to be here, Dylan.
Dylan Lewis: I’m doing great because we have plenty to talk about. We’ve got another CEO change at one of the world’s biggest brands. Got a rundown on one of the bigger IPOs of 2024 straight from their CEO. We also have stocks on our radar, of course. But really, we are kicking off this week with a look at the big macro, because, Ron, how could we not? The Federal Open Market Committee this week decided to cut the core rate for the economy by 50 basis points. We knew going in what direction things were gonna be heading. We did not necessarily know the magnitude or what the market would make of it.
Ron Gross: Oh, boy. Big big, big day. We were waiting. It’s the first rate cut from the Fed since it began hiking in March of 2022, marking a pretty big, and I would say, long-awaited shift in monetary policy. Fed Chairman Powell, to you and me, categorized the Fed’s latest cut as recalibrating policy down over time to a more neutral level. Now, that word recalibrating, is a word that the markets have really focused on, as one analyst put it, using the word calibration allows Powell to push this narrative that this easing cycle is not about us being in a recession, it’s about extending the economic expansion. A little nuance, a little slanting there.
But then we got weekly jobless claims that fall 12,000, and that was far below estimates, reassuring people that we look like we’re actually maybe have achieved the soft landing that we have been talking about for so long on this show and on every other show out there. It is an exciting time. The Fed projected lowering interest rates by another half point before the end of 2024. They have two more policy meetings to get that done. And then through 2025, their forecast interest rates landing at 3.4%. Then through 2026, rates are expected to fall to 2.9%. So at least the pundits and the Fed, they’re signaling lots more rate reductions to come. They increased their expected unemployment rate this year to 4.4% from 4%, and they lowered their inflation outlook to 2.3% from 2.6%, which is approaching that 2% target that they talk about so often. When this all happened on Wednesday, stocks were mixed, they eventually turned negative. Everybody got a good night’s sleep, decided, you know what? Things are perfectly fine. Stocks shot up on Thursday. All is well, Dylan.
Dylan Lewis: Before the announcement, we’d had a little mini pool going just for fun. Ron, Asit, you guys both had a 25 basis point drop. We had different ideas about what the market reaction could look like, and I think just goes to show how difficult it is to anticipate these things. But as all the dust settles, Ron mentioned, the market reaction, very strong. Asit, we’re looking at the S&P setting a new all time high on Thursday afternoon.
Asit Sharma: Yeah Dylan, and what’s a little surprising in this is the breadth of the market was very strong. Or maybe that’s obvious to market watchers. The Fed has changed its posture. Everyone should participate. We had an amazing day on the NASDAQ as well. So the NASDAQ rose 2.5%. This surprised me a little bit because typically you’d expect what’s leading the market forward to take a breather. It’s not to say we didn’t see the other sectors you’d expect come into play. Housing was strong, consumer good stocks were strong. But this is the interesting thing when we think about how the market moves forward from here. Tech is still going to participate and the reason is that lower interest rate environment is going to free up capital among lots of companies to make those investments in technology, be it artificial intelligence, the Cloud, or other initiatives they’ve been holding back on a little bit because capital has been tighter. It’s been more expensive.
As the cost of capital decreases, some of these big balance sheets that are associated with tech companies are going to unleash. Then enterprise businesses, which buy stuff from the big tech companies, they’re also going to unleash their balance sheets. That helps prime the economy. I think investors, as Ron said, initially, a little ecstasy on how to interpret this woke up the next day thinking, wow, this is the beginning of a new posture, and we can see those smaller 25 basis point cuts in the future. This is going to be good for business, and we’re going to go ahead and invest. So the market took a really, I think, positive interpretation of the result.
Ron Gross: I think one thing we can learn from the predictions that we made for fun on Tuesday and got completely wrong, at least in my case, was that you don’t really need to focus on a minutia, 25 basis points, 50 basis points. Is the market going to be up on one day versus down on one day? If you’re going to take the macroeconomy into account when you look at investing, think of it broadly. Do we seem like we’re on good footing? Is the economy growing? Is inflation coming down? Our interest rates, at least, over the last 10 or 20 years, have they been historically low and then perhaps historically high, and we need an adjustment. You don’t need to be so hyper focused. It can get fun, and we like to talk about it on the show. But general directions are much, much more important than being hyper focused on any one metric or any one day.
Asit Sharma: I’m just going to disclose here our actual predictions. You said the market would not have that grade of a day because you expected a 25 basis point cut. I said to be cute. Well, I also expect a 25 basis point cut, but the market, by the end of the day, is going to finish in positive territory. I draw two things from us, both being wrong. Number 1, on a personal level, I’m not that great at predicting the Fed’s moves. [laughs] Number 2, I think there’s a virtue in staying mostly like business focus versus shifting to too much of a macro focus as investor. If you choose wisely, you’re going to invest in companies that can withstand the stresses of a rising rate environment, and they’ll benefit on the back end when interest rates start to ease up.
Dylan Lewis: I agree with everything you guys said. I’m going to do a mix here of focusing on the minutia, to quote, Ron, [laughs] and also taking that broader view. If we look back, 25 basis points has generally been the Fed’s preferred denomination for moving things around. The times that we have seen a 50 basis point move in recent memory, early 2001, 2007, and then March 2020 with COVID. Ron, I look at those times, and I think about right now, talking about perhaps a soft landing. This feels like a comparatively calm period, relative to some of those other ones. Do you feel like the magnitude of what we’re seeing here is more of a response to how quickly rates went up?
Ron Gross: Yeah, the relatively calm is the soft landing. It’s almost synonymous. it
