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The Fed finally went ahead and cut rates by 50 basis points last week, officially signaling that we’ve entered a new round of monetary easing.We knew this was coming, and that the market discounts future events. Remember that interest rates, at their core, are simply the cost of money.I’ve had some concerns with respect to the sector leadership rankings over the past few weeks, and you may be surprised to see what sector popped after this rate cut…
Powell’s Fed May Add Fuel to Inflation
The top-performing sector last week was energy, as tracked by the SPDR Select Sector Energy ETF (). This is a noteworthy development, because it’s been months since this sector was displayed in the Tale of the Tape’s ranking table.With the Fed easing and printing money again, we must be alert for a reignition of inflationary pressures. I’ve been warning about this danger for months, and while it’s still very early, we may have our first indication that it’s a legitimate concern.To be clear – energy is a miniscule sector in the S&P 500. It’s too small to cause any meaningful change in the index’s direction.Tech, the market’s most important sector, was still up last week, but it wasn’t the leader. I’m still keen on seeing this market-mover start to lead again.If instead, we see energy begin exhibiting leadership on a consistent basis instead of tech, then it would be a major warning sign in terms of the sustainability of rate cuts. I still can’t believe the Fed went ahead and eased before inflation dropped below their 2% annual inflation target.So, I think the central bank is playing a dangerous game here, and at the end of the day, the market is going to win whether we like it or not. It’s up to us to follow the price action, and let everyone else worry about the rest of the noise.More By This Author:
The Fed Is Playing With Inflationary Fire
