What stood out, with one wanting to put grain alcohol in the punch bowl/BoC, BoE/Sentiment/GIS, CBRL

A few things stood out to me from Jay Powell's presser yesterday. The two comments that the cut was a 'risk management' move and they are 'meeting to meeting' was the right way to approach this as they balance the difficult and delicate balance of a muted labor market in terms of hiring but still having inflation stuck around 3%. Powell said "There are no risk free paths now." Powell also said of note that outside of one individual, they didn't discuss cutting 50 bps.

What also remains glaring is the asymmetry of how they deal with financial conditions. When credit spreads are wide and we're in a bear market for stocks the Fed is quick to ease. In contrast, Powell yesterday when asked about cutting into a record high in stocks he sort of brushed it off. In a speech in 1955 Fed Chair at the time William McChesney Martin said "The Federal Reserve is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up." The Fed is now adding more alcohol to that bowl and one Fed Governor wants to put grain alcohol in it.

Valuations don't matter until they do but we're now in rarefied air for the S&P 500 with the 2025 P/E ratio at 24.5 and 22x the 2026 calendar year estimate. On a GAAP basis, we are now trading at 29x 2025 earnings estimates. The dividend yield is at just 1.2% currently. Again, doesn't matter though until it does. I do want to argue too that there are cheap stocks out there, just not as many in the highly concentrated S&P 500. Within the S&P, the consumer food/product companies are getting really attractive I believe. They've been hammered and now have bond like dividend yields with equity like upside.

While the 2 yr yield is down about 3 bps vs 1:59pm est yesterday, the 10 yr and 30 yr yields are up by 1 bp. We of course watch the reaction in the long end to see if we get a repeat of the post September 2024 cuts or not. Yields fell going into that, just as they have over the past few months.

In the statement from the Bank of Canada yesterday with their expected 25 bps rate cut they said "With a weaker economy and less upside risk to inflation, governing council judged that a reduction in the policy rate was appropriate to better balance the risks going forward." From here though it wasn't as clear as "the disruptive effects of shifts in trade will continue to add to costs even as they weigh on economic activity." They will be "proceeding carefully" from here they said. Over the past two days the Canadian dollar is basically flat as is the 2 yr yield (down 3 bps yesterday, up 3 bps today).