Larry’s Note: I’ve been trading for over 40 years – through booms, busts, bubbles, and crashes. And what I’m seeing in the market… doesn’t make sense.

The headlines are positive. Retail investors are piling in. But the big money – the institutions – are quietly backing out.

It’s what I call a “market divergence.”

And if you know how to maneuver, you could have the chance to make 30%, 50%, and even 100%+ gains in 24 hours or less.

That’s why I’m putting out a special briefing on Thursday, August 7, at 2 p.m. ET, to break it all down.

I’d love to have you join me. To attend, all you have to do is RSVP right here.

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It didn’t take long for President Trump to start hurling insults.

Last week, the Federal Reserve voted to hold short-term interest rates steady at a range of 4.25%-4.50%. It marked the fifth consecutive meeting without a rate cut.

Trump took to social media to blast the Fed and the decision.

He especially took aim at Fed Chair Jerome Powell, calling him “incompetent” and “too late.”

It’s not the first time we’ve seen Trump lash out at Powell over interest rates.

And he’s keeping up the pressure to cut. In the same post, Trump speculated that September will see a rate cut.

But based on comments from the Fed, coupled with the latest round of economic data, the outlook for rate cuts is growing more uncertain.

And that could see market volatility return in a big way…

Fed on Hold

The Fed is tasked with price stability (i.e., low inflation) as well as promoting full employment.

Adjusting the level of interest rates is the primary lever at the Fed’s disposal to achieve its two mandates.

Higher rates tend to slow economic growth and bring down inflation. Low interest rates tend to stimulate growth when the economy is struggling.

Following the latest meeting, it’s clear which mandate is most important right now. Powell commented that “inflation is further from our goal than employment.”

Recent economic data supported that view.

Last week saw an updated inflation figure with the Personal Consumption Expenditures (PCE) index. PCE is the Fed’s preferred measure of inflation, and it rose by 2.6% in June compared to last year.

The “core” figure strips out food and energy prices. It increased by 2.8%. Both figures are higher than the Fed’s 2% inflation target.

At the same time inflation is ticking higher, there’s evidence that the economy is holding up.

The advance look at the second quarter gross domestic product (GDP) showed the economy growing at a 3.0% annualized pace. That was ahead of estimates and reversed the 0.5% drop seen during the first quarter.

That made it seem like rate cuts were growing even more distant despite Trump’s demands to cut.

But then came another report with a nasty surprise… and it is going to create an even bigger headache for the Fed and more uncertainty for investors.

Tune in to Trading With Larry Live Each week, Market Wizard Larry Benedict goes live to share his thoughts on what’s impacting the markets. Whether you’re a novice or expert trader, you won’t want to miss Larry’s insights and analysis. Even better, it’s free to watch. Simply visit us on YouTube at 8:30 a.m. ET, Monday through Thursday, to catch the latest.

Stalling Labor Market

The outlook for interest rate cuts is jumping all over the place.

Market estimates quickly shifted in the wake of reports covering inflation and economic growth. At one point last week, odds showed a 60% chance that rates would stay at current levels during the Fed’s September meeting.

Then came the July nonfarm payrolls report on Friday. There were 73,000 jobs created during the month. While positive, it missed economists’ estimates for a gain of 110,000 jobs.

But the big surprise came in revisions to prior months. May and June combined saw 258,000 jobs removed from the initial estimates.

That means there was barely any job growth in May and June, and July missed estimates. In all, employment growth over the last three months has averaged 35,000… the worst since the pandemic.

The labor market is showing signs of stalling out, which is exactly the fear among economists and investors due to the Fed holding interest rates at a high level.

But inflation pressures will limit the Fed’s ability to respond to this weaker jobs data.

In other words, the dreaded “stagflation” scenario is showing signs of becoming a reality.

That will keep investors guessing on the interest rate outlook. Following the jobs report, odds once again swung back in favor of a September rate cut.

The uncertainty around a stagflationary environment and the interest rate outlook means that volatility should come back to the market.

Yet as traders, we’ll be poised to turn any rise in volatility to our advantage…

Happy Trading,

Larry Benedict
Editor, Trading With Larry Benedict

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