If Friday’s anything like Thursday, the stock market should end the week on a high note.

The Dow closed at a fresh record, and even though the S&P 500 ended in the red it did hit an intra-day record.

Today’s edition puts an old question in new context: Did the Fed really have to start with a jumbo rate in September?

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Too big, too fast

The US economy is already on the other side of the Federal Reserve’s historic rate-hiking cycle, yet the economy is still running hot. 

A slate of recent economic data has revived chatter on whether the central bank’s jumbo rate cut in September was necessary. 

• Retail sales rose 0.4% in September compared to August

• Consumer spending was revised higher

• Weekly applications for unemployment benefits unexpectedly fell, despite hurricanes and worker strikes

“Today’s data further confirm our assessment that the Fed was too dovish when it cut the federal funds rate by 50bps on September 18,” strategists at Yardeni Research wrote in a note to clients Thursday. 

In response to the Fed’s first rate cut, the Yardeni team responded by raising their forecast for stocks and predicting a jump in bond yields — which is exactly what’s happened since the Fed’s rate cut. 

Stocks continue to break records and the 10-year US Treasury yield is up roughly half a percentage point to 4.10$. 

And with Wall Street pricing in even cheaper borrowing costs ahead, few analysts expect stocks to lose steam. 

CME data shows traders see about 90% odds for a 25-basis-point rate cut on November 7 and roughly a three-in-four shot of the same move lower in December.

Another detail that makes you wonder whether the Fed panicked with its jumbo move: The Atlanta Fed’s GDPNow tracking model revised its third-quarter annualized GDP from 3.2% to 3.4% on Thursday. 

Earlier this month, I raised this same question to Gene Goldman, chief investment officer for Cetera Investment Management.

He’s in the camp that the Fed did not have to act so boldly in September: 

“The move by the Fed to aggressively cut rates has added a new risk that I believe becomes the biggest risk to this goldilocks economy: The Fed cut rates too much, too fast.”

To be fair, strong economic data has not coincided with optimism among everyday Americans. 

The latest consumer sentiment survey from the University of Michigan saw an unexpected dip for the first time in three months with the presidential election weeks away.

Respondents expressed frustration around high prices and inflation — running counter to the retail sales data for the same month.

“Consumers may be feeling less confident on the economic outlook…but for now are happy to continue spending,” said ING economist James Knightley.

“Financial pressures are building for many households, but strength in consumption from those at the top of the income spectrum is more than offsetting that story. This suggests the Fed will tread carefully with 25bp cuts.”

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Elsewhere:

📉 Europe’s economy is sliding. The European Central Bank cut interest rates for the third time this year on Thursday, as predicted. The move follows a recent slump in inflation below 2% for the first time since 2021, in addition to weak private-sector activity and a softening jobs market. (Bloomberg)

👀 Google CEO shuffled his C-suite. The company is bringing in long-time Google executive Nick Fox to replace Prabhakar Raghavan as the search and ads boss. Raghavan will slide into the role of chief technologist. Shares of Alphabet declined more than 1.2% on the day. (CNBC)

🏠️ Being “middle class” is pricier than ever. The standard 20% down payment for a typical US home now costs 83% of a year’s income for the average household, up from 65% just before the 2016 election. Similarly, new car purchases, child care costs, and attending college have all stretched everyday Americans’ budgets. (Bloomberg)

Rapid-fire:

• Expedia stock climbed nearly 5% Thursday following reports that Uber could acquire the travel booking company (CNBC)

• US retail sales strengthened in September by more than expected, reflecting still-robust consumer spending (Bloomberg)

• Mortgage rates rose for the third week in a row, with the average 30-year fixed rate loan hitting 6.44% (Yahoo Finance)

• China-based robotaxi company Pony AI has filed for a US IPO (Reuters)

• Taiwan Semiconductor posted strong third-quarter earnings and said it expects revenue from “server AI processors” to more than triple this year (WSJ)

• Gold hit a new all-time high above $2,700 (Yahoo Finance)

Election odds according to Kalshi, the biggest US prediction market:

Interview:

I sat down with Anthony Pompliano, CEO of Professional Capital Management, to discuss how cheap capital is coming into the market, bitcoin’s recent strength compared to stocks, and how Trump and Harris could impact asset prices.

Last thing:

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