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Stocks coming off a record setting week as Fed officials defend the central bank's decision to cut interest rates by 50 basis points. Atlanta Fed President Raphael Bostic saying the time has come to normalize policy as inflation moves back to the Fed's 2% target. And Minneapolis Fed President Neel Kashkari writing in an essay released this morning, that the risk of further labor market weakening warrants a lower federal funds rate. Turning us now we want to bring in Chris Watling, he's the founder CEO and Chief Market Strategist of Longview Economics. Chris, I guess my question to you is what the market is pricing in versus what we are hearing from the Fed. Because still as we had said laid out in that intro there, CME Fed Fund futures still pricing an even odds of a 25 or 50 basis point cut in November. Is the market still getting a bit ahead of themselves comparing that to what we're hearing from Fed officials this morning?

Yeah, look, I mean, the markets pricing in, I think the market is sort of deeply divided. It's sort of poised on, on, in between pricing in a recession and a soft landing. I mean, if you think historically in a soft landing you would have one, two or three rate cuts. In a recession you have 500 basis points of rate cuts, but the market's pricing in a sort of aggregate out to the end of next year about 250 plus including the 50 basis points we just had. So they're looking for a couple more this year, maybe 150 in there, but two, 225s. I just think the asset prices, the bond market, the equity market, there's deeply divided debate about where we go from here. There's a lot of confusion out there. So, I would say the markets poised in between those two scenarios. Is the US economy going to achieve the Goldilocks soft landing or is it going to actually roll over into a recession?

Yeah, Chris, what does that tell you about the terminal rate especially given what you were talking about with the markets trying to price in a few percentage points of ultimate cuts at this point as the Fed has initiated that cycle?

Well, I mean, maybe there's an argument that what we're pricing in, sort of rates down at two and three quarters 3%, is what the market thinks is the neutral terminal rate, and sort of we had that kind of number on the dot plots last week. But I mean, the reality is, these kind of questions incredibly difficult. No amount of complex equations are going to give the answer. The terminal rate itself changes depending on the structural strengths and weaknesses of the US economy. After the global financial crisis, as everyone's deleveraging, it's much lower. Now, I would argue that the private sector, households and corporates are in much better shape. The terminal rate is probably higher. So, I would guess two and a half to three is a sort of reasonable number, but I think the markets got more to think about before it gets to that question. In other words, are we going to have a recession or are we going to have a soft landing or actually there's a third scenario. Maybe this US economy is clearly slowing at the moment, but maybe it can reaccelerate quicker than people think which, which I think it's an interesting, uh, interesting one to ponder and quite important for a whole load of asset classes, including equities, bonds, gold, all of these. So yeah, terminal rate, it's a great debate, but I think there's more, more to think about before we get to that point, if you like.

Chris, given those three scenarios that you just laid out there and given the uncertainty that we are likely to see here over the next several months, what advice do you have for investors, are you giving your clients right now just in terms of how they should be positioning?

Well, I think comes down to your view on that US recession or soft landing call. And we, we're, we're minded to believe that actually this economy can start reaccelerating almost on its own, not with a few rate cuts, just not a full sort of penality that that's priced into asset prices at the moment. So maybe it's, maybe it's another 50, maybe another 75. And so we're watching very closely lending data. We're watching the mortgage apps. We're watching the idea this housing market in the US could start reaccelerating without a lot of um a lot more falls in the mortgage rates and that, and I know that's not a consensus, but I think that's important. So I think you'll get a soft landing and probably a pretty good reacceleration, and that influences where you put money in terms of equity sectors and bonds and gold and things like that. So, so that's our sort of first key question that we're looking at. And that leads us to the view of course that bonds are pretty overcooked here. They're pretty overbought. Yields are at pretty low levels. We're seeing them start to back up on the back of the 50 basis point cut last week. It leads us to the view that maybe gold needs a bit of a pause in its rally or even a bit of give back and it leads us to the view that within the equity market, the market's rotating away from tech. And at the moment it's rotating a bit to defenses, but I think over the course of the next few months, it'll start rotating cyclical. So that's kind of how we're thinking about things. It's all about that key debate. More than ever, it's about that US macro debate. Where are we on that soft landing recession and reacceleration debate? So, yeah, that's, that's, that's how we're thinking and talking to clients at the moment.

You know, with, with that in mind, you know, as we're thinking about some of the recent record highs and that is the backdrop or the broader context that any investor who's waking up this morning trying to figure out, okay, is there still more room to run from here? What is your assessment? Because in your notes, you're, you're saying that this is a technically concerning level right here.

Yeah, I think in the short term, we've kind of overdone it. I mean, we've just priced in a 50 bit cut. The markets loved that over the last 10 days, you know, as they're thinking, as they're coming up to the meeting and after the meeting, we're back at the all time highs on the S&P as you say. And, you know, I think if I look at short term market timing models, they're all basically on sell. So, I'm a little bit cautious. Sentiment's very toppy. There was a survey out over the weekend that I think family offices are 97% bullish. I mean, you just don't get more bullish than that really. So you got the same in retail, you got the same across many parts of this market. So everyone's kind of all in and positive because you've got a 50 basis point cut in a sense. And that just makes me nervous in the near term. So I think technically, this market's a little bit overcooked. Um, so I'm a little bit cautious in the very near term, but if you look out 12 months, I, you know, I feel I think there's a lot of, a lot of interesting um prospects across the global equity market actually, and particularly outside the US, but um we're going to get that rotation as I say, and I think that'll be good for a lot of global, a lot of the equity industries around the world and a lot of cyclical markets.