📊 The Fed's Rate Cut in Charts

Together with Public

Good morning,

We kept it simple for you this week.

1. ⭐ Addressing the historic Fed rate cut, with a lot of charts

2. ⭐ We discussed how to buy real estate like a pro.

3. ⭐ Click here to join the Rich Habits Network! 

Market Overview

Chart of the Week

The Fed has officially cut interest rates by -50 basis points.

The Federal Reserve made its first rate cut since 2020 — reducing interest rates by -0.5%. This brings the federal funds rate to a range of 4.75%-5.00%.

While the decision was bolder than expected, 11 out of 12 officials supported it. With this decision, it’s obvious the Fed is focused on preventing a “softening in the labor market” from turning into a more “severe downturn.” Fed Chair Jerome Powell expressed confidence that the rate cut would help maintain labor market strength.

When asked about key data points he’s looking toward, he shared the following examples:

• Unemployment rate

• Labor participation rate

• Wage increases

• Job vacancies per unemployed person

• Quits rate

Despite signs of a cooling job market, the Fed projects further rate cuts, potentially taking the fed-funds rate below 3.5% by the end of 2025… and hopefully closer to 2% by the end of 2026.

Stocks initially rose but ended the day slightly lower — reflecting market uncertainty.

As you can see from the chart below, a “fast” start to rate cuts have historically been correlated to double-digit stock market corrections.

Together with Public

Public.com just launched a new product in its suite of yield accounts, offering easy access to high yield and corporate bonds. 

You can now open a Bond Account on Public and earn a 6.59%* yield with monthly interest payments. 

The best part is you lock in your rate at the time of purchase — meaning you can keep earning a 6.59% yield even after the Fed cuts interest rates.

In Case You Missed It…

👉 Episode 82: How to Buy Real Estate Like a Pro

In this week’s episode of the Rich Habits podcast (linked here) — Robert and Austin explained how to buy real estate like a professional! Here’s what they shared:

1. Are You Ready to Buy? — Not everyone is in the position to buy real estate. To check if you are, it’s important to ask yourself a few questions: “Do you have a solid down payment planned?” or “Do you plan to live in the area for at least 5 years?” By asking yourself these questions, you’ll get a jump start on identifying where you might be lacking.

2. Stick to a Realistic Budget — What you can borrow doesn’t always equal what you should borrow. You need to figure out how much of a monthly mortgage payment you can afford, and stick to it. By going over budget, you might put yourself in the situation of becoming “house poor,” delaying your wealth building journey.

3. Work With a Qualified Professional — You need to work with professionals who have experience, not recent high school or college grads. By working with a real estate agent with thousands of transactions under their belt, they’ll be able to unlock more value and insights for you. Additionally, don’t forget about qualified lenders and inspectors!

4. Conduct a Thorough Property Inspection — Don’t make the mistake of skipping the home inspection to save a few hundred dollars. Also, don’t make the mistake of skimping out on a lower-cost inspection. Don’t just go with the inspector your real estate agent or lender is recommending to you — do your own research and diligence.

5. Consider the Specific Location — The small things people forget about when buying real estate are the school districts, crime rates, access to public transportation, and other tax-payer funded amenities. All of these things, compounded over a 10-15 year period, greatly impact the long-term value of your property.

6. Total Ownership Cost — Home ownership isn’t cheap. Don’t forget about the total ownership cost of owning real estate — including insurance, HOA fees, driveway maintenance, roof repairs, landscaping, and more.

By understanding and implementing these six tips, you’ll be able to make your next real estate purchase with ease and peace of mind.

👉 Q&A: $1.2M and "Broke," the Rat Race of Leasing, and Finding Balance w/ Investing and Spending

Here’s a link to the Q&A episode that was posted this morning.

We answered questions from the following people: Ericka B, Dhanishth K, Everett, Susan, Daniel, and Karlie.

The Rich Habits Podcast is available on Spotify, Apple, iHeart, YouTube, and wherever else you get your content.

Robert’s Callout

2024 is NOT 2008 — don’t confuse the two.

Don’t get me wrong — there are plenty of comparisons that you can make to past market tops and the subsequent crashes. However, I think it’s important to recognize that things aren’t entirely the same this time around.

See the chart above for example. Before the Great Financial Crisis (GFC) in 2008-2009, household debt was at astronomical levels — while the debt of the U.S. Treasury was relatively tame.

Fast forward to today and we’re seeing household debt that has continued to decrease over the past decade… with astronomically high debt held by the Treasury.

Remember, recessions occur when the GDP of the United States recedes / contracts. Back in ‘08 — there was a massive debt bubble that led to a massive debt bust… tanking everything with it. This was heavily fueled by rampant fraud taking place on Wall Street with mortgage-backed securities.

Today, the argument of “fraud” doesn’t seem as relevant. You can absolutely argue that consistently bloated jobs numbers have been fraudulent + there’s some questions surrounding earnings reports (i.e. SMCI being accused of accounting manipulation). However, neither of these are as sinister as the mortgage-backed securities madness 16 years ago.

And on the brighter side — GDP doesn’t look like it’s going to have back-to-back negative quarters like we saw in 2022. We’ll of course see if this changes, but do not confuse a potential 2024 / 2025 recession with what happened in 2008 / 2009.

Even if it does play out poorly — they are different.

Austin’s Callout

A 50 basis point rate cut isn’t exactly bullish.

Since 1995, every time the Fed began a new rate cutting cycle with 50 basis points — the performance of the S&P 500 has been quite ugly. It’s important to recognize that this sample size is very small (only two instances), but many investors will be looking back at this historical data and investing their capital accordingly.

Below is another chart that now highlights recent instances when the Fed began a new rate cutting cycle with 50 basis points — and what subsequently happened to the unemployment rate.

If we do see some big drawdowns — please remember that they don’t usually last for only a few trading days…

• August through October 2023 the S&P 500 fell -12%

• March 21 through April 19 2024 the S&P 500 fell -6%

• July 16 through August 6 2024 the S&P 500 fell -9%

I guess what I’m saying is don’t deploy all of your capital in only one or two trading days, as this recent bull market has shown us corrections can last several weeks. I’ll be strategically spreading out my purchases, and specifically I’m going to continue adding to Berkshire Hathaway and small caps (IWMI).

The Rich Habits Radar

• 👉 The U.S. House didn’t pass a federal funding extension, shutdown lingers.

• 👉 U.S. retail sales unexpectedly rose in August.

• 👉 Amazon CEO Andy Jassy announced mandatory return-to-office.

• 👉 Intuitive Machines won a $4.8B NASA contract, their stock soared +40%.

• 👉 JPMorgan might take over Goldman Sachs’ Apple Card biz.

• 👉 Intel will be separating its chip manufacturing business into a new unit.

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• Acorns — Get $35 free when you subscribe

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• Video Course — Use code “Newsletter” for 15% off

• Seeking Alpha — Optimize your portfolio

• Credit Card Matrix — Find your next favorite card to swipe

• Roi — Use code “Habits” and start tracking your net worth

• Dynasty — Protect your home in a trust

Disclaimer: This is not financial advice or a recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

Public Disclosures: Paid endorsement for Public Investing, Inc. Not investment advice. All investing involves the risk of loss, including loss of principal. Brokerage services for US Listed and registered securities, options and Bonds in a self-directed brokerage account are offered by Public Investing. ETFs, options and Bonds are available to US members only.

Bond investing carries risk including the risk that you lose some or all of your investment. High Yield bonds carry greater risk of default. All yields and prices are subject to change without prior notice. Public Investing earns a fee on every bond trade.

*A Bond Account is a self-directed brokerage account with Public Investing, member FINRA/SIPC. Deposits into this Account are used to purchase 10 fractional investment-grade and high-yield bonds in equal par value allocations. Yield represents avg. annualized rate of return across all bonds, before fees, for 9/18/2024. Yield can change daily, and yield at time of purchase may be different from yield shown. Return may be affected if you do not hold a bond to maturity, or if the issuer defaults or calls the bond. Bonds are securities, not FDIC insured, and may lose value. Fractional bonds come with additional risks and limitations. Public earns a fee on each Bond Account transaction. Bond Accounts are not investment recommendations; do your own research. See https://public.com/disclosures/bond-account.