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| By Sean Brodrick |
Wall Street is making a big mistake right now. You can see money shifting as traders start to price in the Federal Reserve not cutting interest rates until later this year … or not at all!
Man, are these bozos wrong! And their mistake is one you can use to your advantage.
Remember, Wall Street started out the year pricing in SEVEN rate cuts. Now they’ve switched to between two and three, and more of them are saying no cut in June, or no cuts at all.
This, despite the fact that Federal Reserve Chair Jerome Powell told us that the Fed wants three rate cuts this year. It’s just a matter of when.
There is one type of investment class that does VERY well when the Fed cuts rates. Right now, it’s rallying, but it’s also being held back by Wall Street’s growing belief that inflation is too hot, and as a result, the Fed won’t cut rates.
Sure, we might get a hot inflation print when the consumer price index comes out today. Nothing travels in a straight line.
The Bureau of Labor Statistics’ consumer price index for March is expected to rise by 3.4% from a year earlier. Consensus calls for a 3.7% year-over-year increase in the core CPI, which excludes food and energy components.
That would be down from 3.8% in February.
But even if there is a short-term bump, in the bigger picture, inflation is still trending lower.
So, I expect the Fed to follow through on what Powell said last week. He said the Fed is still on course to cut rates three times this year. He did say that it would take a while for the Fed to evaluate the current state of inflation, so the timing of rate cuts is uncertain.
Base Case Bullishness
You know who agrees with me? Former Federal Reserve Bank of St. Louis President James Bullard.
Talking to Bloomberg TV yesterday, he said, “At this point, you should probably take the committee and chair at face value — their best guess right now is still three cuts this year. That’s the base case.”
What happens when the Fed cuts rates? As I mentioned, one asset class does really well. I’m talking about commodities.
Take a look …
In past rate-cut cycles, copper led the way higher, followed by industrial metals, then gold, then oil. Funny enough, we are seeing copper, gold and oil rallying right now, but for different reasons.
Copper is rallying due to rising demand for electric vehicles — which use a lot more copper than an internal combustion car — and renewable energy. It’s also buoyed by supply constraints. In particular, the closure of the Cobre Panama copper mine, which was one of the world’s largest sources of copper.
Oil is headed higher, thanks to a good old-fashioned supply-demand squeeze.
Gold is rallying as central banks, institutions and individuals snap up bullion for currency, economic and geopolitical reasons, as wars heat up around the globe.
If copper, gold and oil are climbing now, imagine how much faster they’ll climb if and when rate cuts start. And the stocks leveraged to them could do even better.
Those rate cuts are coming. Be prepared. And here are three ways to use it to your advantage:
- The Global X Copper Miners ETF (COPX) holds 36 of the biggest copper miners.
- The Energy Select Sector SPDR (XLE) holds 23 of the world’s top energy companies.
- The better gold miners are tracked by the VanEck Gold Miners ETF (GDX).
All three of these ETFs should ride a rate-cut-fueled commodity rally much higher.
That’s all for today. I’ll be back with more soon.
All the best,
Sean
