URGENT: Federal Reserve ENDS Rate Hikes, Prices Fall, Massive Pivot Ahead!

What's up, Graham! It's guys here, and you absolutely have to pay attention to what just happened. As of a few hours ago, the Federal Reserve has once again decided to pause their rate hikes for the rest of 2023. Except this time, with a bit of a twist. That's because, unlike literally every single rate hike before us, the Fed is now believed to be completely done raising interest rates.

As a result, the market is pricing in some very unique predictions that are soon about to have an impact on stocks, to real estate, to even how much you get paid in the savings account. So, given all the recent changes and today's comments from the Federal Reserve—which is arguably the most important meeting throughout the entire year—let's discuss exactly what's happening, the impact this is about to have on you and your money, and what you could expect throughout 2024.

Because it's probably a lot different than you were thinking. Although, before we start, as usual, if you appreciate me scrambling to get this video out as soon as possible after the news, it would mean a lot to me if you hit the like button or subscribe. Either one of those helps with the channel tremendously. Thank you for doing that! I will do my best to respond to as many of your comments as possible, so thank you guys so much.

Also, a big thank you to Policygenius for sponsoring today's video, but more on that later. Alright, now before we go into the biggest changes about to take place in 2024 when it comes to rate hikes or cuts, one of the single biggest factors to consider is what's going on with inflation. Recently, it's begun to improve.

See, on the most basic level, the Fed wants inflation to return back to its 2% target, and then they could slowly begin reducing interest rates so as not to cause our entire economy to turn into a dystopian wasteland of $10 a gallon gas. But today, their plan is actually beginning to work—kind of. That's because, on December 12th, it was revealed that overall inflation across all items rose by just 3.1%, down from the 3.2% that we saw back in October.

So why do some people say this isn't enough? Well, in terms of the categories that saw the largest price increase, at the top of the list we have car insurance, which rose by, wait for it—19.2% year-over-year. How? How? Well, the answer is that, with car repairs and replacements going higher, insurance companies have been raising their premiums at the highest annual jump in 47 years.

Since these insurance companies generally set their terms every 6 to 12 months, this just happens to be the month where prices have increased by a lot. Separate from that, though, a slightly more important metric that the Fed prefers to use is what's known as core CPI, which purposely excludes more volatile categories like food and energy since those could be a bit more seasonal.

When it comes to that, this is where things get interesting. Despite the last month of core CPI coming in at 0% in November, core CPI increased by 3%, which was mainly pulled up by services. This includes everything from medical care, tuition, video and audio services, to water, sewer, and trash collection, and so on.

Now, the downside to this is that, from all the core CPI categories, services inflation tends to be the stickiest, which means it's the least likely to decline anytime soon. However, the bright side with all of this is that shelter does seem to be declining, albeit very slowly. And there's good reason for that. When tenants typically sign a new lease, they do so with terms between 1 and 2 years.

So, in that time frame, their price is locked in, and then afterwards they're free to negotiate a new price. With national rents beginning to fall by 2% year-over-year, it's likely already in the cards to see shelter inflation beginning to drop within the core CPI as soon as spring of 2024. So even though that helps explain why we're seeing some rising prices, while we're on the topic of housing, before we talk about what Jerome Powell just warned us about, let's talk about what we're seeing in the overall market because there is a lot to break down.

Look, by all metrics, 2023 has been a breakthrough year for pretty much everything but housing. Well, you're going to want to sit down. Last week, the Federal Housing Finance Agency reported that home prices have increased by a staggering 55% year-over-year, and month-over-month, they increased by 6% in September alone. As they explained, home prices increased in almost all 50 states, from Vermont, Maine, New Hampshire, Connecticut, to New Jersey, recording some of the highest annual appreciation rates, with the worst markets coming in for Hawaii and the District of Columbia, posting negative rates of 0.9% and 8%.

Basically, even the hardest hit markets weren't even that bad. Why? Well, the general consensus is that the higher mortgage rates go, the less likely existing homeowners are to sell since more than 62% of them already have rates locked in below 4%. This means the higher interest rates go, the more unaffordable it is to move, which means less inventory hits the market as a result, and the more buyers have to pay when demand outstrips supply.

Now, don't worry, not all hope is lost for buyers in 2024. That's because Goldman Sachs believes that the days of insane price gains are over, and starting soon, we'll likely go back to a 2% type of home appreciation environment, which is roughly around the trend of the last 30 years or so. A separate analyst also seconds this by saying that national home prices will fall by 1.7% in 2024 for the first time in a decade.

Although that doesn't mean that every area will go down. In fact, as they clarify, of the 100 large metros included in the report, 63 are likely to see prices rise. This includes areas like Detroit, Rochester, New York, Des Moines, Iowa, Hartford, Connecticut, and Toledo, Ohio, some of the biggest potential gainers, with Austin, Texas, St. Louis, Spokane, Washington, and San Antonio taking the spots for the worst potential losses.

Now, separate from that, Realtor.com also expects home prices to fall in 2024 as buyers wait for mortgage rates to drop. For instance, if you believed that mortgages would be cheaper 6 months from now than they are today, why not wait to see if you get a better deal? But with many housing experts believing that affordability will get better in 2024, there is the realization that this is only the tip of the iceberg.

Because then we have another topic that's worth discussing, and that would be the stock market. But before we go into that, I do think it's really important to mention that stock prices don't always behave rationally. Like you know the saying: the market isn't the economy. I just think that that perfectly encapsulates the reality that there's a lot that could happen completely outside of your control.

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And now, with that said, let's get back to the video. Alright, so as far as the stock market goes in 2023, so far prices have been unstoppable. Like, the S&P 500 is up almost 20% year to date; the Dow Jones is up nearly 10% in its longest winning streak since 2021. And wait for it, the NASDAQ is up over 35%. By and large, for those who have stayed invested, dollar-cost averaged on a regular basis, and diversified, this has most likely been one of your best years ever.

But that should also prompt you to wonder what's going on, and can this continue again for another year? Well, at the core, all of this was really just the result of one simple term: the 10-year treasury yield. This has been the benchmark that investors use to gauge mortgage rates, the cost of borrowing money, and the most important, from everything, the risk-free rate of return.

After all, if you knew that you could lock in 5% guaranteed every single year for the next 10 years, all of a sudden, investing that money in the stock market becomes slightly less appealing. So, as a result, the market goes down. Now, generally, this 10-year treasury rate is entirely dependent on the latest inflation data, the Federal Reserve rate hikes, and investor expectations over these next few years.

But with inflation trending downwards, the Fed indicating that they could be done hiking rates, and investors believing that rates would be lower in the near future than they are today, the 10-year treasury has begun to decline. As a result, the market is going back up. Basically, just think of it this way: when interest rates are at 0%, everyone is forced to invest in risky assets like the stock market if they want to make any sort of return whatsoever.

But when interest rates are at 5%, well, some people would rather take the safe approach and pull their money out of the stock market for a guaranteed 5% return, and today, that's what we've been seeing. As of recently, these bond and money market funds saw a record influx as investors cashed in on guaranteed returns. But this also suggests that there's a lot of money sitting on the sidelines that might continue to propel stock prices even higher.

Like for context, there's currently $5.7 trillion just sitting in cash from institutions and investors, and the lower interest rates go, the more likely it is that that money could flow back into asset prices, causing them to go up even more. Now, of course, in terms of where stock prices could go from here, the Financial Samurai blog, who I highly recommend checking out, the link down below in the description, has compiled a list of the top predictions in 2024.

If you're curious what those are, here's what he says. To start, just for some context here, with the S&P 500 currently around 4500, these are the firms who were horribly wrong in their predictions from a year ago. Barclays said the S&P would be 3675. Morgan Stanley, UBS, and Citigroup predicted 3900. BlackRock 3930, and Bank of America and Goldman Sachs came in at 4000.

On the other hand, the most accurate predictions came from JP Morgan and Wells Fargo, at 4200 and 4300, Oppenheimer at 4400, Deutsche Bank at 4500, and Jardini Research at 4800. So, given all of that, if you want the predictions from those who are closest to being right in 2023, let's start with JP Morgan. They believe that we'll actually see an S&P 500 decline to 4200 in the next year, saying that with the step down in economic growth eroding household excess savings and liquidity and tightening credit, they see the 2024 growth as unrealistic.

However, Wells Fargo is slightly more optimistic, with the S&P 500 closing out at 4625, or basically slightly higher than where we're currently sitting today. From their perspective, with a low VIX, credit spreads tight, equities ringing, and the cost of capital higher, it's time to downshift.

Even further down the list, RBC Capital Markets thinks we'll see 5000. And who's fairly close from their prediction a year ago, thinks we'll see 5100 and that stocks will attain another year of positive returns in 2024, albeit will demonstrate a more sanguine, broadly distributed, and fundamentally defined performance relative to the last decade or so.

In other words, normal and typical. Or basically, all of this means that absolutely nobody has any clue what's going to happen in the next year, even though it seems like on the surface if the Fed lowers interest rates, the stock market might continue to go even higher. Although, in terms of when this is going to happen and how fast it could occur, wonder no longer because this is exactly what the Federal Reserve just said.

Look, it's important to mention that as of right now, the market believes the Fed will begin lowering interest rates as soon as March of 2024. Although, in terms of what Jerome Powell says, it's not so black and white. In a recent interview, he admitted that their current policies were slowing the United States well into restrictive territory.

Their key measure of inflation averaged 2.5% over the last 6 months, barely above their 2% target, and that the full effects of the Fed's rate hikes to date have likely not yet been felt—basically suggesting that barring any sort of economic disaster, interest rates are likely as high as they're already going to be.

Like Bloomberg even went so far as to break down every single one of his carefully crafted sentences, and the words "prepare to hike if it becomes appropriate" pretty much confirm that our current conditions don't condone any higher interest rate hikes, at least based on what we can see.

On top of that, Jerome Powell also said that their soft landing seems to be falling into place, with the job market still strong even as growth in spending and output slows and price pressures abate. The risk, however, is that if people believe too much that they’re done raising interest rates and begin spending too much money because stock prices go higher, that could cause inflation to reappear and for Jerome Powell to revisit the possibility of raising interest rates even further.

This is why he continues to reiterate that it's premature to talk about cutting rates and that most likely, interest rates will remain high—higher for longer. The last thing that they'd ever want to do is lower interest rates and then realize that they were wrong and then raise them back up. If that happens, they would absolutely destroy what little credibility they have left.

That's why to me, the only question really becomes how soon will they cut interest rates? To me, the answer is 4 to 6 months after inflation returns to its 2% target. Finally, in terms of my own thoughts, I tend to believe it's too early to call victory on inflation quite yet. After all, according to the Wall Street Journal, Americans are still spending like there's no tomorrow, with the average consumer splurging on events, concerts, vacations, and experiences with the savings rate dwindling.

Essentially, according to them, for a small subset of the population, the economy has gotten so bad and future prospects so hopeless that they have shifted to reckless spending now since it can't possibly get any worse, and this is a huge problem. This suggests that, one, our economy might not be as robust as the data is showing, and two, all the increased spending could cause inflation to be stickier than anticipated.

That's why I'm taking the approach that most likely, we'll see rate cuts later than we think. They'll keep rates higher longer than we think, and this is just a completely random guess. I could be totally wrong; even the best analysts were wrong about their stock and real estate predictions. When you have so many guesses around, there inevitably a few of them will be correct.

This is the reason why I'm just buying into the markets consistently. I'm diversifying across stocks, real estate, cash, treasuries, and a small amount of Bitcoin, and I'm just staying the course. As usual, my mindset is that if the market ends 2024 in the green, great! I made a profit, but if it ends in the red and it goes down, that just means I'm able to buy everything for less than I'm able to buy today.

Either way, I kind of see that as a win. If you'd like to share your perspectives on this, I will be doing my best to read as many of your comments as possible. If you think I'm right or wrong, just let me know, and I'll do my best to respond to you.

And as always, if you want the full outline to this video, as well as more information that I'm usually able to include on YouTube, my newsletter is down below in the description. Enjoy! Make sure, by the way, to hit the like button and subscribe; that helps out the channel tremendously. That's it! Thank you so much, and until next time.