THE FEDERAL RESERVE JUST FLIPPED | Major Changes Explained

What's up guys, it's Graham here. So this is big. After more than a year of patiently waiting, the Federal Reserve has just officially paused their rate hikes for the first time since March of 2022, marking the beginning of a brand new market cycle that's about to affect, well, pretty much everything from stock prices to home values to savings accounts to credit cards, you name it.

So given these new changes and the fact that we've just started a brand new bull market, it's crucial that we discuss exactly what's happening, what this means for the market, the Federal Reserve's latest comments for everybody watching, and how you could potentially use this information to make money.

On today's episode of "Robots Are Still Not Replacing Your Jobs," although before we start, if you appreciate the up-to-date reporting on all of this within hours of it happening, even though I have a cold, it would mean a lot to me if you hit the like button or subscribed. That is my level of dedication; sickness or not, I'm gonna get the video on. So thank you guys so much, and now let's begin.

Alright, so first, it's no surprise that the FED has been doing anything they can to fight inflation, and to many people's surprise, it's actually beginning to work. Like, as a quick background, all of this began in March 2022 when we saw our first rate hike of 0.25. At the time, this was their chance to signal the end of free money while mentioning a term that sends chills down every investor's spine, and that would be quantitative tightening.

Just think of it like this: throughout 2020 and 2021, the Federal Reserve promised to buy an endless amount of corporate bonds and mortgage-backed securities as a way to stimulate lending. See, prior to then, anytime a company needed money or a bank wanted to issue a loan, they would have to rely on selling those loans to institutional investors that would only pay an amount that was relative to the amount of risk that they would lose.

But when everything shut down and those investors cowered in the corner, holding on to whatever cash they had left, the Federal Reserve stepped in to buy whatever assets were being offered for sale just to prove to everybody that everything would be okay.

Now, obviously, that strategy worked, but that is not in the market building a portfolio the size of Wall Street Bets. So eventually, they'd have to sell, and most of their selling or quantitative tightening these days is simply getting paid back for loans and then not reinvesting the proceeds. But as a result of doing that, yields have increased, asset values have fallen, and subsequently, interest rates have skyrocketed faster than at any other point in history.

Which brings us to the question: how well is everything really doing? Well, according to inflation, it's actually getting substantially better. The latest report as of June 13th showed us that inflation came in at four percent year over year, which is the lowest reading since 2021. Month over month, it's also worked out to be a 0.1 percent increase, leading many people to believe that the fight against higher prices is actually working.

However, I do have to say, even though the overall report does look pretty good, there are a few points of concern, namely the fact that core inflation, which excludes food and energy prices, is a bit stickier than expected in the five percent range and that it is not going away as quickly as people would like. For example, this core inflation rose 0.4 percent over the last month, and it's still a 5.3 from a year ago, driven mainly by shelter costs, which increased by 0.6 throughout the last 30 days.

This means that outside of food and energy, prices are still increasing on a day-to-day basis, but it is a slight improvement over last month's CPI, which came in at five and a half percent, so at least it's moving in the right direction. In addition to that, this chart shows exactly which categories are seeing the largest price changes throughout our economy.

And now with inflation beginning to subside a little bit, the markets are absolutely loving it, which of course leads us to the stock market. At first glance, yes, the S&P 500 is up over 14 year-to-date, more than 16 percent year over year, and it seems as though it might continue going even higher.

Except once you begin looking deeper, you'll realize that most stocks are really not doing that well. As CNBC points out, the overall index is really just driven and by a few stocks that seemingly are doing incredible, but the others, well, not so much.

In fact, they note that the median stock is down 0.2 percent, and almost all of the index's gains are really just driven by five companies. For anybody wondering, those five stocks are Apple, Microsoft, Google, Amazon, and Nvidia. Without those five stocks, it's said that the market would only be up one and a half percent, including dividends.

It's also reported that if you removed the other two largest companies, which are Tesla and Meta, the S&P 500 would be slightly down for the year, leaving most investors in the red. However, if this sounds unusual or like a potential red flag, just consider that if you take a look throughout history, it's actually quite normal.

For example, a finance professor at Arizona State University analyzed over 26,000 stocks since 1976, and he found that the average stock only traded for seven years and lost money, and that included reinvesting the dividends. And if you thought that was bad, it gets so much worse because the most common return for any individual stock over its lifetime is a loss of one hundred percent.

On top of that, only 48 percent of stocks delivered any positive returns whatsoever. In addition to that, from those twenty-six thousand stocks that were analyzed, only a thousand of the stocks accounted for all of the profits since 1926, and only 86 stocks of this 26,000 were responsible for half of those gains.

So from this data throughout the last hundred years, only 4 percent of stocks that are publicly traded make any more money than a one-month treasury bill. This means that what we're seeing today is completely normal, and throughout history, the largest companies are constantly changing and leading the overall index towards profitability.

So given all of that, today, the good news is that yes, we have officially started a brand new bull market. Although even though the stock market is doing a lot better than most people expected, what does that mean for the housing market? When it comes to this, look no further than Redfin, who gives a monthly report on exactly what's going on throughout the overall market.

And in May, their findings were relatively surprising. On a national level, they reported that near seven percent mortgage rates had handcuffed homeowners who refused to list and pay a higher interest rate than what they've already locked in. In other words, if someone has a three percent interest rate locked in for 30 years, it financially does not make any sense for them to sell and pay a seven percent interest rate that would cost them fifty percent more.

Because of that, new listings hit their lowest level of any June on record, limiting home sales and keeping home prices afloat, and as a result, home prices are only down 1.6 percent year over year. Now, in terms of which markets are up and down the most, the largest declines have so far been in Austin, Texas; Oakland, California; Las Vegas; San Francisco; and Phoenix.

Whereas areas like Cincinnati, Miami, Milwaukee, Fort Lauderdale, and Virginia Beach have increased by another 4 to 13 percent. Realtor.com also seconds this by saying that 22.7 percent fewer new homes were listed for sale this year compared to last year. They also found that five percent more people felt like now is a good time to sell compared to the previous month, indicating that higher prices aren't necessarily deterring the buyers that are in the market, and sellers are still able to get the prices that they're asking for.

However, if you're currently sitting on the sidelines patiently waiting for prices to fall, well, there is some good news in the form of lower rent. Thanks to a recent construction boom, there are more new units coming in the market than at any other point since 1973, and this means you could potentially save a little bit extra money. Just consider that a recent Redfin study found that throughout the entire country, only four major metros were cheaper to buy than rent: that would be in Detroit, Philadelphia, Cleveland, and Houston.

Outside of those locations, owning a home at a six and a half percent interest rate could cost you as much as twice the amount that you'd ordinarily pay in rent. So buying in many cities right now doesn't make a lot of short-term financial sense. Now, they do go on to explain that if mortgage rates were to decline down to four percent, the cost of renting would begin to level out, but until then you're finding a lot more inventory listed for rent.

Plenty of homeowners do not want to get rid of their historically low interest rates, and if you're a renter, you may as well use this to your advantage. Although in terms of what the Federal Reserve just said and how this is likely going to impact you in terms of future rate hikes, here's what you need to know.

As of a few hours ago, the Federal Reserve stated that they would pause or skip the rate hike for the month of June, marking the end of the last 10 consecutive rate hikes that we've seen since early 2022. However, keep in mind that this doesn't mean we're in the clear entirely, because as Jerome Powell emphasized, they're ready to raise rates again if inflation doesn't show signs of slowing down. And as they've signaled, there could be more coming throughout the rest of the year.

For example, as it stands right now, they've projected to raise rates another two-quarter percentage points before the end of the year, bringing us to a 5.6 federal funds rate in just the next six months. Obviously, this was not priced in, and higher interest rates would continue to put downward pressure on the markets, but it is a very clear signal that we're likely to see another rate hike in July and probably another one in September, at least until it's clear that all inflation is beginning to go down.

For anyone wondering, this is why the stock market reacted so negatively within seconds of the report being announced. Fortunately though, a slight pullback isn't anything out of the ordinary, and we should begin to see a lot more clarity on all of this over the next few weeks to months.

Oh, and by the way, speaking of stocks, if you guys are interested, Webull is currently giving you all the way up to 12 free stocks when you sign up and make a deposit. I do have a paid affiliate link down below in the description if you guys are interested, so enjoy.

Now, as far as my own thoughts, personally, it seems as though the Federal Reserve has made it to their overall interest rate target, except now they could fine-tune exactly what they need so that inflation can gradually decline without sending the entire economy into a tailspin. I mean, so far they've actually done a pretty decent job with the exception of a few failed banks, slightly higher jobless claims, and still high inflation.

But beyond that, it does seem as though we are gliding towards the soft landing that so many people thought was impossible just a year ago. In fact, the New York Times even notes that as of right now, both unemployment and the inflation rate are relatively stable and that the job market is so strong that even if we have a temporary rise in unemployment, it won't create that much hardship.

This means that we're likely to see a temporary rate hike pause, see what happens just as needed, with the potential for more rate hikes in the future, and then hopefully we could return to normal—or I guess as normal as things could possibly be. So with that said, you guys, thank you so much for watching. As always, it does help to subscribe, hit the like button. I'm still getting over the cold, sound horrible, sorry about that guys. Wanted to get the video out. Enjoy! Thank you so much, and until next time.