Maybe it’s a law of history: every innovation faces opposition. The early nineteenth-century Luddites wrecked textile machinery because it took their jobs. Our innate suspicion extends to trade, too, which is, after all, just another technology for turning one thing into another. Apartheid-era white South Africans opposed efforts to modify the Colour Bar because they feared that African workers would take their jobs and reduce them to “uncivilized” standards of living. Protectionists want to shield their fellow Americans from foreign competition.
Artificial intelligence is the most recent worry and was the big technology story of 2023. Should we curse these intelligent machines? After all, once machines can solve problems, they will take all our jobs and cause mass unemployment. Peggy Noonan sounded the alarm about Artificial Intelligence in the pages of the Wall Street Journal. OpenAI’s executives appeared before Congress to ask (perhaps predictably) for licensing and regulation, and some wonder if the robot apocalypse is finally upon us.
We have heard this story before. It’s still wrong.
The “creative” part of creative destruction is harder to see than the “destruction” part. Of course, I can make life a bit more convenient with new apps and subscription services. But it’s not as dramatic as a plant closure, and there’s no despairing laid off laborer to interview.
But what happens when people innovate and increase others’ productivity? They make some resources redundant and free them up for other, more productive uses. Innovation and institutional change run into distributional problems because some people might be made worse off — absolutely and permanently. Sometimes those who take losses from a changing status quo can veto the change. Government social insurance or trade adjustment assistance, for example, might make it easier for people to swallow the bitter pills of losing their livelihoods. Civil institutions like houses of worship, civic organizations, and other groups help people having hard times. Whether people deserve help might be irrelevant to the political reality. When people put themselves in positions to extract rents, they will do so. In the very long run, weathering periodic injustice might be a small price to pay for big increases in standards of living.
I run the risk of writing my epitaph here, but the threat of artificial intelligence is, most likely, overstated. Learning loss during the COVID-19 pandemic underscored that: online schooling is a poor substitute for in-person schooling. Yes, many meetings could have been emails, but we also feed on contact and conversation. These needs require a lot of human nuances that artificial intelligence is not likely to understand for quite some time.
Releasing labor from areas where machines have taken over has created many new possibilities. Artificial intelligence cannot yet aggregate and deploy knowledge about the particular circumstances of time and place as efficiently and effectively as someone with human intuition. We appreciate aggregations and recommendations, but Facebook’s algorithm doesn’t understand how you do your job quite as well as you do. FA Hayek pointed out a lot of knowledge of “the particular circumstances of time and place” is not properly “scientific.” It is generally of a kind that is difficult (if not impossible) to articulate, much less automate.
The economic historians Joel Mokyr, Chris Vickers, and Nicholas Ziebarth have argued that artificial intelligence might be the world’s best research assistant, but it is unlikely ever to be the world’s best researcher. Every technological change creates a lot of new possibilities. Artificial intelligence — even if not truly “intelligent” — is a monumental achievement of creative cooperation, and it frees up time and energy for even more creative endeavors.
As Frederic Bastiat puts it, “to curse machines is to curse the human mind.” To hate a technology is denigrate the most human undertaking, namely, thinking.
Netanyahu Vows Attacks On Lebanon Won’t Stop As Hezbollah Escalates With Deepest Strike Inside Israel
Update(1500ET): Sky News and others are reporting that for the first time of the conflict, Hezbollah has launched a drone attack on a navy base which lies south of Haifa. The Atlit navy base which was targeted lies 80 kilometers from the Lebanese border. This is an attack significantly deep into Israel and reveals an extended range of Hezbollah missiles. Likely as things slide further, and with Israel keeping up its intense airstrikes on Lebanon, Hezbollah missiles will begin reaching further and further.
Israeli Prime Minister Benjamin Netanyahu has said late in the day Tuesday (local time) on X: “We will continue striking Hezbollah. Anyone who has a missile in their living room and a rocket in their garage will not have a home.”
Israel’s military has been repeatedly claiming that Hezbollah is storming missiles, drones, and ammunition inside people’s homes in the south of Lebanon. “Our war is not with you, our war is with Hezbollah,” he warned in the message emphasizing that Israel won’t stop its strikes.
Hezbollah announces targeting using a swarm of one-way drones the HQ of the Israeli Special Naval Task Unit Shayetet 13 at the Atlit base south of Haifa.
The drones – the farthest drone strike so far – accurately hit the positions of its officers and soldiers.
“Nasrallah is leading you to the brink of the abyss,” Netanyahu added in the message directed at the Lebanese population. “Rid yourself from Nasrallah’s grip, for your own good.”
Israel’s Iron Dome anti-air defense system continues to be highly active over the north:
Update(1128ET): Once again President Biden has issued contradictory messaging on the current Middle East crisis. With Israel in its second day of greatly ramped-up airstrikes on Lebanon, amid a new declared offensive, Biden asserted what he framed as Israel’s right to defend itself. Israel will surely take this as effectively a greenlight from the US administration.
“Any country, any country, would have the right responsibility to ensure that such an attack could never happen again,” Biden said while referencing the Oct.7 attack. But then he quickly highlighted that in Gaza, “Innocent civilians” are also “going through hell.” He said the “Thousands and thousands killed, including aid workers. Too many families dislocated, crowded in a tent, facing a dire situation.” He added: “They didn’t ask for this war.”
And that’s when he said he is “determined to prevent a wider war that engulfs the entire region” – but that’s looking a little too late at this point, considering the fast-moving Lebanon events.
Israel’s military has meanwhile said that the Tuesday airstrike on a building in southern Beirut killed Hezbollah’s rocket and missile division Ibrahim Qubaisi. Lebanese officials have so far said that six were killed and 15 were wounded in the strike, among some 560 total killed in the last day-and-a-half. Hezbollah has yet to confirm Qubaisi’s death.
“Over the years and during the war, he was responsible for the launches at the Israeli home front. Qubaisi was a central source of of knowledge in the field of missiles, and was close to the senior military leadership of Hezbollah,” the IDF said of the allegedly deceased target.
There are meanwhile growing fears that if Iran enters the conflict directly in Lebanon, the United States could then jump in and it would be escalation chaos to regional conflagration:
Raymond Murphy, a professor at the University of Galway’s Irish Centre for Human Rights, says the situation in Lebanon is “extremely dangerous” and that Israel has attacked to not only defeat Hezbollah but provoke it to respond with increasing force.
“And as a consequence, possibly to bring Iran into the conflict, as well as the Houthis in Yemen, which would force the hand of the United States,” the former UN peacekeeper told Al Jazeera from Galway, Ireland.
“So if the situation escalates and Hezbollah falls for what is essentially a trap that’s being set by the Israelis and responds very forcefully… then the United States will also step in in defense of Israel,” Murphy continued. This after yesterday the Pentagon announced it has deployed more troops to the region, but without disclosing their precise mission or deployment base.
🚨🇱🇧ISRAELI AIRSTRIKES HIT HEZBOLLAH WITH UNPRECEDENTED FORCE
The Israeli Air Force has launched its most extensive airstrikes ever against Hezbollah, targeting over 1,600 sites in southern Lebanon and the Beqaa Valley within a day.
Regional correspondents by late afternoon Tuesday (local time) say that Israeli strike on southern Beirut suburbs are becoming more frequent.
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On Tuesday White House national security spokesman John Kirby urged that all Americans should leave Lebanon immediately while there are still flights. Two days of heavy Israeli airstrikes targeting especially Hezbollah strongholds of the south have killed at least 558 people and left 1,835 injured, according to the latest Lebanese Healthy Ministry figures. The situation is growing more urgent as the war comes to Beirut.
“We want to make sure that there are still commercial options available for Americans to leave, and they should be leaving now while those options are available,” Kirby told ABC News. The US Embassy in Beirut has since October a year ago issued several alerts and warnings telling Americans to leave the country.
The US has warships in the Mediterranean in the scenario that direct emergency evacuations of stranded US citizens are needed.
Lebanese government sources say that among the over 500 dead are 50 children. Official figures have not distinguished the rest of the fatalities between militants and civilians.
Also on Tuesday Israel launched a third airstrike on the Lebanese capital, again targeting a southern neighborhood in what’s possibly another attempt to take out Hezbollah commanders. Israel’s military says it has attacked over 1,300 Hezbollah targets over the prior 24 hours.
Since yesterday and throughout the night, tens of thousands of civilians have made their way on clogged freeways from the south to north. Many poured into Beirut while others went all the way north to Tripoli.
The below video shows a fresh strike on the Lebanese capital Tuesday:
Historically Hezbollah has long presented itself as the protecting force to the residents of the south, so the fact that it is struggling to provide this now is widely seen as a significant negative blow to its reputation.
As Westerners and Lebanese alike look for a way out, options to get out of the country are fast dwindling. Already most major American and European carriers had halted service to Beirut, but regional carriers are joining them as Israel expands aerial operations to Beirut:
Gulf airlines, including Emirates and Qatar Airways, temporarily suspended flights to Beirut as tensions soared between Israel and Hezbollah.
“The safety of our crew and customers is of utmost importance and will not be compromised,” Emirates said in a statement, announcing the suspension of flights on Tuesday and Wednesday. Etihad Airways and flydubai also joined several international carriers in suspending Beirut services.
The latest airstrike on Beirut appears to have hit a single residential building, with Lebanon’s National News Agency (NNA) reporting several casualties. Initial reports from the region say there are at least three fatalities.
It happened in the southern neighborhood of Ghobeiri, and emergency responders are seeking to access people reportedly trapped among three severely damaged or collapsed floors.
Israeli media is meanwhile reporting that “the target of the Israeli airstrike in the Lebanese capital of Beirut is the head of Hezbollah’s missile unit, defense sources tell Israeli media.” However at this early point his fate is unknown.
Hezbollah meanwhile has fired over 100 rockets on northern Israel in the past several hours, and aerial alarms have been frequently sounding in the port city of Haifa – as it’s come under attack in the past days.
An Israeli official has described the current IDF mission in Lebanon as seeking “to change the balance of power in the north by destroying thousands of rockets, by destroying [Hezbollah’s] capabilities, and through other means.” It began with “various explosions of beepers and other devices across Lebanon” (despite Israel now strangely officially denying it was behind the pager attacks).
“It continued with the assassination of Ibrahim Aqil and the Radwan leadership,” the official described to Times of Israel. “And it has continued over the past two days with the expansion of massive fire with the aim of hitting Hezbollah hard.”
Fires in the aftermath of Hezbollah rockets raining down on northern Israeli towns and settlements:
The United Nations is calling for urgent de-escalation, saying that diplomacy is still possible, but on the ground it’s looking like that ship has sailed.
Would-Be Trump Assassin Ryan Routh’s Son Arrested On Child Pornography Charges
The son of attempted Trump assassin Ryan Routh has been arrested in North Carolina on child pornography charges. Oran Routh, who was interviewed by mainstream news outlets just after his father’s attempt on Donald Trump’s life and stated he and his father both hated the former president, has been charged with possession of an SD card holding “hundreds of files” of child sexual abuse materials.
The evidence includes graphic descriptions of the videos and a chat from July in which Oran Routh allegedly responded to someone advertising the content for sale.
According to ABC News, investigators found the child pornography files when they searched the home of Oran Routh in Guilford County, North Carolina this past weekend. The search was “in connection with an investigation unrelated to child exploitation.”
More photos of Oran Routh, the leftist son of the Democrat Trump attempted assassination suspect. The son allegedly had hundreds of child s—x abuse content. pic.twitter.com/RuuHNo1Ymd
The unrelated investigation in question is, of course, Ryan Routh’s attempt to shoot Trump as he golfed near his Florida club in West Palm Beach only a week ago. Meaning, federal agents say they stumbled upon the SD card while looking for evidence against Oran’s father. The bizarre incident raises even more questions about the assassination.
First and foremost, Americans want to know how Ryan Routh was able to get Trump’s itinerary in preparation for his attack? Trump’s golf outing was a last minute decision and not outlined in his normal schedule. The Secret Service claims that they had to “scramble” to provide security at the venue and did not have time for a proper sweep. This is, of course, the second time that Trump was almost killed due to the Secret Service not initiating standard security procedures.
Charging documents for Oran Routh, son of second would-be assassin of Donald Trump, Ryan Routh. pic.twitter.com/JjUypAx42t
The bigger issue, though, is that Ryan Routh somehow knew to be at the golf club and somehow knew exactly where to set up with his SKS rifle. This is not possible without intel on Trump’s movements. In other words, the logical explanation is that Routh had help from the inside.
Federal prosecutors state that Routh “stalked” the area for a few weeks prior to his shooting attempt, but this does not explain how he was able to approach the club grounds with a rifle at the exact moment Donald Trump was within shooting range.
The arrest of Routh’s son on child porn charges may simply be coincidental. The political left is, after all, the degenerate gift that keeps on giving. But the arrest could also represent something else entirely.
If one assumes (according to the evidence from the last two shooting attempts) that insider participation in the assassination is a reality, then it’s fair to ask if Ryan Routh was blackmailed into the murder by someone who had knowledge of his son’s activities. Was he trying to prevent his son’s arrest?
Or, could the CP charges against his son be a way to keep Ryan Routh quiet about who might have helped him with Trump’s location that day? In other words “Look what we can do to your family if you say anything…”
Was Routh supposed to escape that day? His recent internet history indicated he was planning a route from Palm Beach to Mexico. He was only caught because a bystander took a photo of his vehicle and license plate as he sped away. Perhaps his arrest has thrown a monkey wrench into the plans of other interested parties?
One would expect him to run into a Jack Ruby situation before very long, but in the meantime his son is now a factor in this strange equation.
We previously discussed Shellyne Rodríguez , the machete-wielding former Hunter College professor. Rodríguez is back with a large following shown in a video with protesters chanting with her about “slitting the throats of the masters.”We previously discussed a videotape of Rodríguez trashing a pro-life student display in New York. Before attacking the table, she told the students, “You’re not educating s–t […] This is f–king propaganda. What are you going to do, like, anti-trans next? This is bulls–t. This is violent. You’re triggering my students.”
The videotape revealed one other thing. At Hunter College, and at other colleges, it seems that trashing a pro-life student display and abusing pro-life students is not considered a firing offense. Hunter College refused to fire Rodríguez.
The PSC Graduate Center, the labor organization of graduate and professional schools at the City University of New York, supported that decision and said Rodríguez was “justified” in trashing the display, which the organization described as “dangerously false propaganda” and “disinformation.”
Rodríguez later put a machete to the neck of a reporter, threatened to chop him up and then chased a news crew down a street with the machete in hand. Somewhere between the machete to the neck and chasing the reporters down the street, Hunter College finally decided that Rodríguez had to go.
Rodríguez denounced the school for having “capitulated” to “racists, white nationalists, and misogynists.” She explained that her firing was just a continuation of “attacks on women, trans people, black people, Latinx people, migrants, and beyond.”
The Cooper Union, however, refused to sever ties with Rodríguez, 47, and decided that she should continue to teach her students. Later it too fired Rodriguez after continued radical conduct. However, according to the New York Post, Rodriguez attributed her firing to her anti-Israeli comments. She declared:
“Cooper Union has fired me because of a social media post I made about ‘Zionists’… effective immediately. This is fascism. Ya’ll are learning about it in real time. Stay strong, [stay] brave, stay defiant, don’t bite your tongue, and drink plenty of water! Pa-lante!”
Before watching this video, it is important to keep in mind that the faculty members and administrators previously wanted Rodríguez as a colleague.
In a video on X shared by journalist Andy Ngo, Rodríguez leads a group of pro-Palestinian protesters in chanting “Our ancestors … dreamed of us slitting the master’s throat.” The scene shows a clearly unhinged Rodríguez who is not just supported by these protesters but clearly thrilling them with her rage rhetoric.
NYC, Sept. 20 — Shellyne Rodriguez, the far-left academic who put a machete to the throat of a NYPost reporter last year, lead a crowd outside the Brooklyn Museum in chanting: “Our ancestors dreamed of us, slitting the masters throat.” Video by @L2FTV: pic.twitter.com/iEwl5UhZtz
Rodríguez leads the pro-Palestinian protesters in anti-police chants:
“Our ancestors are horrified to see black people, Latinx people, indigenous people, children of migrants, and Muslims joining the slave patrol NYPD and [inaudible] plantation overseers in the jails and prisons.”
For a person who chased reporters with a machete, it is a curious choice for a speaker against violence. However, Rodríguez is clearly revered by the crowd.
The fact that she pleaded guilty to harassment and menacing charges clearly did not reduce her popularity. To the contrary, for some, it may have increased it.
This was the person that two colleges wanted on their faculties and resisted efforts to fire her, even after trashing a table in an insane diatribe against pro-life advocates. She is the person that the PSC Graduate Center declared was “justified” in her violence against those peaceful advocates.
Gov. DeSantis Declares State Of Emergency Ahead Of Dangerous Hurricane Threat
Tropical Storm Helene formed in the northwestern Caribbean on Tuesday morning and is forecasted to strengthen rapidly over the next few days, potentially making landfall along the coast of the Florida Panhandle and/or Florida west coast on Thursday.
As of late Tuesday morning, the National Hurricane Center’s latest advisory note said TS Helene was churning about 180 miles east-southeast of Cozumel, Mexico, with maximum sustained winds of 45 mph. The storm is moving northwest at 12 mph and could become a hurricane as soon as Wednesday. The storm could rapidly strengthen into a major hurricane by late Wednesday, if not early Thursday, before landfall.
“The center of Helene will move across the far northwestern Caribbean Sea through tonight, then move across the eastern Gulf of Mexico Wednesday and Thursday, potentially reaching the Gulf Coast of Florida late Thursday,” NHC said.
The latest weather models show TS Helene’s cone of uncertainty making landfall around Florida’s Big Bend region.
On Thursday, NHC forecasts huge storm surges, upwards of 12 feet or more in some areas, across the Big Bend region.
Florida Governor Ron DeSantis declared a state of emergency on Monday for 61 counties. He said the state of emergency covers “every county in Florida outside Southeast Florida.”
DeSantis has requested a pre-disaster emergency declaration from FEMA. Several counties have already posted mandatory evacuations, including all residents in Charlotte and Franklin counties. Voluntary evacuations were issued for Gadsden County.
In late August, Hurricane Idalia made landfall near Keaton Beach, Florida. So far this hurricane season, the tropics have been very quiet despite climate alarmists in leftist corporate media warning everyone that ‘boiling’ sea temperatures will cause destructive mega storms.
The deranged leftist who attempted to kill president Trump was in possession of a list of venues and events where the GOP nominee was going to appear, according to a detention filing.
Ryan Routh appeared in court Monday charged with two federal gun crimes: Possession of a firearm by a convicted felon and possession, and receipt of a firearm with an obliterated serial number.
The man suspected by the FBI of planning to kill former Pres. Trump possessed a list that included dates from August to October of venues where Trump had appeared or was expected to be, prosecutors said in a detention filing on Monday. @kfaulders reports. https://t.co/0YOKUObLBPpic.twitter.com/Dh12qeIiKI
DOJ prosecutors noted that Routh also conducted several reconnaissance trips to Trump’s West Palm Beach golf course and his Mar-a-Lago residence months before he was caught.
Prosecutors said Ryan Routh is suspected to have traveled near the golf course and Trump’s Mar-a-Lago resort multiple times in the month leading up to his arrest. https://t.co/s7kkCyKpWY
Routh’s apparent knowledge of intimate details of Trump’s schedule has led many to question where he got it from, with Rep. Eli Crane even suggesting there could be a mole within the Secret Service who is intent on seeing Trump killed.
It also emerged that Routh weirdly wrote a letter addressed “Dear world” outlining how he had tried to assassinate Trump, but had failed. Within the letter he offers $150,000 to anyone who can finish the job.
The DOJ filed the letter along with other materials contained within a box that Routh left with someone he knew.
The filing states, “On September 18, 2024, law enforcement was contacted by a civilian witness who stated that ROUTH had dropped off a box at his residence several months prior. After learning of the September 15, 2024, incident at Trump International, the witness opened the box. The witness stated the box contained ammunition, a metal pipe, miscellaneous building materials, tools, four phones, and various letters. One handwritten letter, addressed to ‘The World,’ stated, among other things, ‘This was an assassination attempt on Donald Trump but I failed you. I tried my best and gave it all the gumption I could muster. It is up to you now to finish the job; and I will offer $150,000 to whomever can complete the job.’“
Images of the letter are now all over the internet.
Ryan Routh failed to assassinate President Donald Trump.
Routh is now offering a $150,000 bounty for whomever kills President Trump.
The immediate question arising from this is why has the DOJ made public, in open court with no redactions, a direct call from a violent lunatic to target Trump for yet another assassination attempt?
Donald Trump Jr. is asking the same question.
His motives are unknown folks!!!! DOJ releasing this in a week but not the trans killer manifesto for months isn’t signaling anything.
Meanwhile, Trump himself sent out an email to supporters Monday describing the federal charges brought against Routh as a “slap on the wrist”
Trump wrote, “The Kamala Harris/Joe Biden Department of Justice and FBI are mishandling and downplaying the second assassination attempt on my life since July.”
He added, “The charges brought against the maniac assassin are a slap on the wrist. It’s no wonder, since the DOJ and FBI have been coming after me nonstop with Weaponized Lawfare since I announced my first Historic Campaign for the Presidency.”
Trump continued, “The DOJ and FBI have a Conflict of Interest since they have been obsessed with ‘Getting Trump’ for so long,” adding “It’s very difficult to trust the Biden/Harris DOJ/FBI to investigate the assassination attempts, due to Election Interference and the FAKE CASES brought against me, including their control over local D.A.s and A.G.s.”
“Shockingly, after the bullet went through my ear on that fateful day in Butler, Pennsylvania, the FBI Director went before Congress and falsely said that it may not have been a bullet, ‘It was just glass or shrapnel’ – a lie condemned by even my worst enemies. What he said was disgraceful, especially since it was witnessed LIVE by millions of people, and he was forced to immediately retract,” Trump further urged.
“If the DOJ and FBI cannot do their job honestly and without bias,” Trump continued, “and hold the aspiring assassin responsible to the full extent of the Law, Governor Ron DeSantis and the State of Florida have already agreed to take the lead on the investigation and prosecution.”
He concluded, “Florida charges would be much more serious than the ones the FBI has announced. The TRUTH would be followed, wherever it leads. OUR JUSTICE SYSTEM IS CORRUPT AND DISCREDITED, especially as it pertains to the 45th President of the United States, Donald J. Trump. LET FLORIDA HANDLE THE CASE!”
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Red Sea Maritime Chokepoint Disruption To Persist Into 2025, Top Shipping Exec Warns
Speaking at the Marine Money conference in Singapore earlier today, Jeremy Nixon, CEO of Ocean Network Express, warned that container shipping disruptions in the southern Red Sea will persist “well into 2025.”
“Based on current geopolitical developments at the end of September, it looks quite likely that we will continue to have Cape of Good Hope routing well into 2025,” Nixon said on the sidelines of the conference.
He said the diversion of container ships around the Cape of Good Hope to avoid Iran-backed Houthi drone and missile attacks in the Red Sea has resulted in forward cargo ordering jumping by 10% in North America on a ton-mile basis. He said this outpaced the injection of container supply for the year.
Nixon’s container ship fleet is comprised of more than 200 vessels worldwide. The direct result of tight container capacity has pushed prices higher.
Nixon also commented on looming labor strikes to hit US East/Gulf Coast ports next Tuesday:
“We’re preparing now for the 30th of September when we expect that the terminals all along the East Coast will come to a stop.”
Back to the Red Sea, the militaries of the US and European Allies have not ensured freedom of navigation and maritime security in the critical maritime chokepoint.
Since October 2023, Houthi rebels have launched over 80 attacks on vessels in the region.
The latest Bloomberg data shows that no LNG vessels are traversing the critical waterway, with destinations in Europe, the US, and South America.
Anas Alhajji, an energy market expert based in Dallas, recently wrote on X, “Whoever controls the Red Sea controls the trade of China, India, Russia, and the Middle East. Houthis are just a tool…”
Last week, the Federal Reserve made a significant move by cutting its overnight lending rate by 50 basis points. This marks the first rate cut since 2020, signaling the Fed is aggressively supporting the economy amid a backdrop of softening economic data. For investors, understanding how similar rate cuts have historically impacted markets and which sectors tend to benefit is key to navigating the months ahead.
In this post, we will explore the historical market performance following similar 50-basis-point rate cuts, highlight the best-performing sectors and market factors after such cuts, and outline three critical risks investors should be aware of heading into year-end.
Historical Outcomes To Rate Cuts
A 50-basis-point rate cut, especially the first one, is an aggressive action by the Fed. The Fed historically uses such a sizable cut during economic slowdowns or rising recession risks. Here are a few notable examples:
January 2001: Following the dot-com bubble bursting, the Fed cut rates by 50 basis points in January 2001 to stabilize the economy. While the S&P 500 initially rallied, the broader market eventually experienced continued declines due to the deepening tech recession.
October 2007: In the early stages of the Global Financial Crisis, the Fed implemented a 50-basis-point cut to inject liquidity into the system. As credit markets imploded due to an accelerating mortgage crisis, the immediate response from the stock market was positive, but the underlying financial instability resulted in prolonged market weakness throughout 2008.
July 2019: The Fed’s most recent rate cut was in July 2019, responding to concerns about global trade tensions and an economic slowdown. Again, the market initially rallied, with the S&P 500 posting positive returns in the months following the cut. That period is notable because the rate cut was more of a precautionary measure, as the most recent rate cut seems to be, rather than a reaction to an existing economic downturn.
This is just an analysis of the Federal Reserve’s most recent rate cuts. Reviewing the history of rate-cutting cycles back to 1960 reveals some interesting points. The table below shows the 3-month average of the Effective Fed Funds Rate, the total decrease during a rate-cutting cycle, and related market outcomes or events.
It is worth noting that while many analysts point to periods where the Fed cut rates and stocks initially rose over the next few months to a year, in many cases, those rate cuts preceded more significant events, as shown in the chart below.
The 1995 Analogy
For example, many analysts point to 1995 as a similar period to today, when the Fed initially cut rates, and the market continued to rise without realizing a recession. However, a difference between 1995 and today is the inversion of the yield curve. In 1995, the yield curve never inverted, signaling a healthy economy. As shown, the yield curve did not invert until 1998, and the Fed resumed its rate cuts with a recession following in 2000, triggering the “Dot.com” crisis.
It is not unusual for investors to see an initial positive response in the short term as they welcome the Fed’s efforts to stimulate economic growth. Furthermore, prevailing bullish sentiment and momentum continue pushing higher asset prices. As shown in the table above, the primary determinant of whether the market experiences a significant correction or not hinges on a recessionary impact.
Historically, performance over a six-month to two-year period is primarily dependent on whether the rate cut successfully stimulates the economy or if deeper economic issues persist. For example, in 2001 and 2007, the six-month performance following the rate cuts was negative due to underlying economic challenges, while in 2019, the market continued to perform well until the onset of the pandemic-related economic shutdown.
Given this background, where should investors focus their attention?
Best-Performing Sectors and Market Factors
When the Federal Reserve reduces interest rates, in this case by 50 basis points, the decline in borrowing costs tends to benefit different sectors and asset classes in varying ways. While there are many options, here are five areas to start your research based on historical trends.
Large-Cap Stocks: Large-cap stocks, and in particular, the “Mega-cap” stocks, tend to benefit the most immediately after a rate cut. With strong balance sheets and the ability to access cheaper capital, they can expand operations, boost profit margins, and, most importantly, buy back shares. Furthermore, these companies are highly liquid and benefit more from passive indexing flows than small and mid-cap companies.
Small-Cap Stocks: Speaking of small-cap stocks, they tend to see a delayed response. These companies primarily use floating-rate debt; lower borrowing costs improve their financial strength. However, they are more sensitive to economic cycles, so recessions remain an important risk. Investors favor large-cap stocks, but small-caps may gain momentum once economic conditions stabilize.
Treasury Bonds: Bonds tend to perform well during interest rate cuts. Bond prices typically rise as rates fall, providing investors with capital appreciation. Longer-duration Treasury bonds historically perform as lower interest rates drive demand for fixed-income assets.
Real Estate Investment Trusts (REITs): REITs benefit significantly from rate cuts, as lower interest rates reduce borrowing costs for real estate acquisitions and development. Additionally, REITs provide steady income through dividends, which become more attractive as bond yields decline.
Gold: Gold tends to perform well during an interest rate-cutting cycle when the economy slips into a recession and the dollar weakens. However, gold has already had a tremendous run in anticipation of the Fed’s most recent rate cut, so much will depend on the strength or weakness of the dollar and economic outcomes.
Some Areas To Consider
With that information, and given the historical performance of various sectors and market factors following rate cuts, here’s how investors might consider positioning their portfolios:
Large-Cap Stocks: Focus on high-quality, large-cap stocks that can benefit from lower borrowing costs and have a strong track record of weathering economic uncertainty. Companies in consumer staples, technology, and healthcare tend to perform well in rate-cut environments.
Fixed Income: To capitalize on rising bond prices, consider adding exposure to long-term bonds or bond ETFs. Fixed-income investments provide stability and income, which can be particularly attractive in a low-rate environment.
REITs and Income-Producing Assets: Look for opportunities in REITs and other income-generating assets, which benefit from lower interest rates and provide reliable cash flow through dividends.
Small/Midcap Companies: Consider selective exposure to small and mid-capitalization companies that have low debt levels and strong balance sheets and pay a dividend.
Three Key Risks for Investors Post Rate-Cut
While there are potential benefits to a Fed rate cut, there are also risks:
Presidential Election: Given the disparity between the current candidate’s economic policies, particularly around tax rates and deficit spending, there is a risk of market participants derisking ahead of the outcome. One key issue to focus on is the outcome of the congressional races. A bifurcated outcome between control of the House and Senate would be most favorable for Wall Street as it would limit any drastic changes to current economic and regulatory policies.
Economic Recession: As noted above, the most significant determinant between rate-cutting cycles, market corrections, and bear markets is the onset of a recession. The markets will likely respond negatively if upcoming data shows significant deterioration, particularly in employment and services-related data. In such an event, sectors such as financials and cyclicals are particularly vulnerable to prolonged economic downturns, as banks may face higher loan defaults and reduced demand for their services.
Geopolitical Risks: Geopolitical tensions, particularly around trade, energy supply, or global conflicts, can exacerbate market volatility. External shocks such as escalating trade wars or energy supply concerns can weigh on investor sentiment and disrupt global markets even with lower rates. For instance, disruptions in the oil market or increased trade tensions with major economies could derail the positive effects of rate cuts.
The Japanese Yen: In August, we discussed the impact of the “Yen Carry Trade” on the financial markets. That risk has not subsided, particularly should the Bank of Japan continue to hike interest rates while the rest of the world is cutting them. Such a move by the Bank of Japan would likely create another spike in the Japanese yen, creating another “margin call” for those highly levered positions held by Wall Street.
Conclusion: Navigating the Market Post-Rate Cut
The Federal Reserve’s 50-basis-point rate cut signals a proactive effort to support the economy amid potential risks. Historically, the S&P 500 and various sectors have responded positively to rate cuts in the short term, with large-cap stocks and bonds often leading the way. However, investors should remain cautious of risks such as the upcoming election, recession, geopolitical tensions, and the Japanese Yen that could impact market performance in the coming months.
At RIA Advisors, we remain allocated to the equity markets as momentum, relative strength, and the overall trend remain bullishly biased. However, we continue to regularly implement risk management protocols, evaluate opportunities, and closely watch the incoming economic data.
While everyone is trying to guess how this turns out, history suggests exercising some caution seems prudent. For us, it is always preferable to err on the side of caution. While it is easy to reallocate cash into equities, it is much more difficult to recoup losses.
Russia Issues Rare Blanket Condemnation Of Israeli Offensive In Lebanon
Russia has taken the rare step of issuing a blanket condemnation of Israeli military actions in Lebanon. On Tuesday its foreign ministry spokeswoman Maria Zakharova said in a scathing statement that these escalated attacks which have reached Beirut could destabilize the whole Middle East region.
She began the statement by reviewing that starting Monday “the Israeli leadership announced that the IDF had launched an offensive operation, dubbed ‘Northern Arrows,’ aimed at undermining the military infrastructure of the Hezbollah movement.” At this point Israel has mounted three major missile strikes on Beirut, specifically the southern suburbs.
“Hezbollah, in turn, intensified its rocket attacks on military facilities in Israel,” she continued. However, Israel would disagree with the Kremlin spokeswoman’s assessment, as it has pointed to rocket attacks on Israeli civilian towns and settlements, which have also resulted in the indefinite evacuation of at least 80,000 people since last year.
Zakharova then stressed, “We strongly condemn the large-scale military attacks against Lebanon. We would especially like to emphasize our principled position on the inadmissibility of indiscriminate attacks that target civilians.”
She urged that the international community must press both sides to halt the “spiral of violence” before the situation “gets out of control”.
“We must do everything possible to prevent the Middle East from plunging into a full-scale armed conflict, the devastating consequences of which will inevitably affect everyone – both in the region and beyond,” the diplomat said. “We proceed from the fact that the security of any state in the region should not be ensured at the expense of others,” she said.
Israel on Monday reported an attempt by Iran-linked paramilitaries in Iraq to launch a missile on its territory, which wasn’t successful. As for Syria, some regional pundits have expressed surprise that President Bashar Al-Assad has been relatively quiet and appears ready to stay on the sidelines.
Iran has meanwhile warned that Israel is seeking to use its offensive in Lebanon as a ‘trap’ to draw in Iran and the plunge the whole region into crisis.
Israel has said Hezbollah has for the past year been launching rockets attacks on Israeli civilians, while others view the IDF’s new offensive as being disproportionate…
Iranian President Masoud Pezeshkian alleged that Israel is laying “traps”. Times of Israel describes that “Pezeshkian pointed to the deadly explosions of pagers, walkie-talkies and other electronic devices in Lebanon last week, which he blamed on Israel, and the assassination of Hamas’s political leader Ismail Haniyeh in Tehran on the eve of his inauguration.”
“They are dragging us to a point where we do not wish to go,” the Iranian leader said in reference to Israel and the Netanyahu government. “There is no winner in warfare. We are only fooling ourselves” if we believe that, Pezeshkian said.
China Fires A Monetary Bazooka… It Won’t Be Enough
By Bas van Geffen, Senior Macro Strategist at Rabobank
A fresh coat of paint
After widespread speculation on social media, a Chinese zoo has finally admitted that their “panda bears” are actually “panda dogs”. Or, well, just some regular dogs with painted furs. In similar fashion, the Chinese government now seems to admit that the economy is in a worse state than hoped.
Yesterday, the central bank had already announced a 10bp cut to its 14-day repo rate. More importantly, the PBOC announced a rare press conference for today’s session – sparking market speculation that further measures were forthcoming. Indeed, today Governor Pan Gongsheng unveiled a substantially bigger stimulus package than earlier attempts to stem the bleeding in the property sector:
First of all, the PBOC lowered the amount of reserves banks have to hold by 0.5 percentage points, and Pan added that –depending on conditions– the reserve requirement may be reduced by another 25 to 50 basis points before the end of the year. This should –theoretically– unlock CNY 1 trillion in additional liquidity.
Whether this liquidity will be drawn depends on demand. To encourage borrowing, the PBOC cut the 7 day reverse repurchase rate from 1.7% to 1.5%, and Pan stated that the medium-term lending facility rate is expected to be cut by 0.3%. The loan prime rate and deposit rates will probably fall by some 20 to 25 basis points.
Crucially, these lower rates will not only apply to new borrowers, but also to outstanding loans. Homeowners will be allowed to renegotiate mortgage terms with their current lender, and the central bank is looking into allowing people to switch between banks.
Prior easing measures mostly helped new buyers, and not existing homeowners. That led to a flood of early repayments, weighing on China’s banking sector. Of course, the refinancing plan could still affect banks’ balance sheets and profitability, but Pan expects this to be less impactful as financing rates will fall in tandem. The PBOC governor expects that this should lower interest rates on existing mortgages by some 0.5% on average.
The central bank calculated that this should lower the mortgage burden for some 150 million people, cutting the annual interest payments by CNY 150 billion. However it is unclear whether only mortgages for first homes may be refinanced (as was the case last year), or if this is also applicable to mortgages for second homes. Since these second-home mortgages come with significantly higher rates, that may partially determine how effectively this proposal will stem early repayments.
Additionally, the central bank is clearly looking to revive demand for property. First, the minimum downpayment on second homes will be cut to just 15% of the purchase amount, from an already-low 25%. And secondly, the PBOC will double down on its re-lending programme for state-owned enterprises that buy up unsold property. The central bank will now provide liquidity equal to 100% of the value of the bank loans used for this purpose, up from the previous cap of 60%.
And on top of the support measures aimed at the real estate sector, China is also propping up equity markets:
The PBOC will set up a swap facility that gives securities firms, funds, and insurers access to central bank liquidity for the purchase of equities;
The central bank is also exploring a re-lending facility that provides listed companies and major shareholders with liquidity to buy back shares.
Traders certainly welcomed the comprehensive set of measures. China’s equity indices gained 4% on the day, if this was not simply the result of the stimulus that directly targets China’s stock markets. But, despite this exuberance, are the plans really more than a fresh coat of paint to make things look new and shiny again?
We doubt that the PBOC has done enough to revive the real estate sector, kick-start the domestic economy, and to effectively mitigate the risks of deflation. Mortgage rates and borrowing restrictions may have been lowered, but will households really start purchasing (second) homes again if economic uncertainty is still this high? Broader fiscal measures may be needed to revive consumer confidence, bolster the real estate sector, and to kick-start the domestic economy in order to achieve the government’s growth target.
Whereas the PBOC pleasantly surprised markets today, the Australian central bank stuck to its script. The RBA left the cash rate on hold at 4.35% today, as expected by virtually everyone. The Board’s statement was little changed from August. Policymakers continue to emphasise that inflation remains too high, aggregate demand remains above aggregate supply, and that the labour market is operating beyond estimates of the NAIRU.
In the press conference Governor Bullock mentioned that the RBA did not explicitly consider a rate rise at this meeting. That’s a change from previous meetings where a rate rise was explicitly considered. Our Australia strategist believes this to mean that the hawkish bias of the RBA is all but gone. Recent forward indicators (PMIs) suggest that output prices are rising at a slower pace even as input price gains remain elevated. This suggests that the demand/supply imbalance is no longer so great that firms have pricing power to fully pass on higher supply chain costs. Our house view has been for a first RBA rate cut in May, but today’s meeting clearly skews the balance of risks towards an earlier cut, rather than later.
