Transcript: Caroline Woods: Joining me now, Ben Emons, Founder and CIO of FedWatch Advisors. Ben, thanks so much for being here.

Ben Emons: Good morning, Caroline. It’s good to be on. Thank you.

Caroline Woods: So Ben, the Fed cut interest rates for a second time this year. They’re now below 4% for the first time since what, late 2022 I believe. How significant is the cut for both the economy and for the stock market?

Ben Emons: Oh it has significance because, the Fed is alert about what’s going on in the job market, but it’s not a good picture. You see each day new layoff announcements. So I do think this Fed has learned about that. The economy may be having slowdown here why these layoffs happen. At the same time lowering rates is always a stimulus to the stock market. Maybe not today so much, but it generally is. I think that people are also looking at this saying, OK, if the Fed stays ahead of the problem, it is just simply helping the economy by lowering rates, then that’s ultimately good for the stock market. So it should be it should be a positive outcome.

Caroline Woods: Ultimately, after we work out all these earnings that we’re going through, how would you rate the state of the economy right now. Does this cut signal optimism that inflation is not a target but coming down, or does it signal concern to you?

Ben Emons: Well, it has actually a two sided message, so to speak. Meaning you’re right that this inflation is still a bit high, but it is definitely on the track. Still down by the Fed can lower rates because if it were to go up too much inflation, then the Fed could not really do anything. But this is also a fact that it is cautious about where we’re heading, because, you know, it does show that the unemployment rate is ticking up. And, you know, we don’t have the official data currently, but there’s some private estimates out there that show that there’s a bit of a movement higher in jobless claims and that kind of metric. So I think that’s what the state of the economy bit is. We got softness, but not like an outright contraction or weakness. I think as much as the real GDP data that Atlanta Fed puts out every day or every other day shows a kind of a robust number, like almost 4% growth. There’s some weakness underneath. And I think that is where we’re currently at. And this probably has a lot to do also with the government shutdown. Right it causes uncertainty. So it keeps people on the sidelines. I think that kind of is where we’re heading for now until this shutdown is resolved.

Caroline Woods: Well, Powell did spook markets with comments about really having a lack of conviction of a December rate cut. It seems like we’re seeing a rebound today. But what’s it going to take for the Fed to cut again?

Ben Emons: I think what it’s going to take is that once they get access to the official data, because I think that was one reason why Powell mentioned yesterday these words of like far from it. It’s not a conclusion to cut rates again in December. Far from it. There’s kind of a strong message I think. But I think it has to do with that. If we don’t have good visibility here of where the economy exactly is, you can’t make an informed decision. So that is one reason. But the other reason would be related is that if that data does become available and it shows that we have more weakness in the jobs market coming through, as maybe these layoffs seem to be indicating, then that would be for the Fed. Definitely a reason to lower rates. So it’s still, it’s still out there right. It’s in it. We’re not we’re not done yet. It’s still I don’t think 6 to eight weeks from now that next meeting. So let’s see what happens. But I think the Fed has made a firm decision on lowering rates 100% in December.

Caroline Woods: What do you think’s going to happen come December and come next year when it comes to rate cuts?

Ben Emons: Well, I have always been of the view, Caroline, that we do deal with an economy that gets a fair bit of push in the future, meaning we’re getting stimulus from the big beautiful bill. That’s Stephanie adding stimulus to the economy. We obviously have now decline in interest rates has happened this year. So that is stimulating. We’re getting some resolutions and resolve of the trade disputes that we’ve seen. So the tariffs are not going to go as much up as much anymore. Maybe go a little bit down. So that will help. And then lastly, which is really important is, of course, not only the spending on I the proceeding, but the investment that is going to already taking place or going to take even more place that particularly the investment. I think that’s the big story. And I think that will bring the economy much stronger path. And if that’s the case, then the Fed doesn’t have much need to cut rates anymore.

Caroline Woods: We may be, you know, by the early next year at the end of this little cutting cycle in terms of the market impact, can stocks continue to move higher if the Fed doesn’t keep cutting?

Ben Emons: I think it can, because we’ve actually had a period now over the last month or two months where the market has really been trading on everything about I and not so much about these Fed rate cuts. I think that difference is important because that’s the market that stands on its feet to be driven by different fundamentals than just a fact that cutting rates have been speculating on that and then therefore willing to take risk and buy stocks. And of course, if we see today, if we’re seeing it playing out in some stocks today, it can also be of something of too much of too good, right. As in, you know, one stock singled out. But meta is down significantly because they’re announcing a lot more spending on AI. So it also indicates how this market can trade and trade the other side. Nothing to do with the fact, but really based on AI and what’s going on there in a different direction. So I think that’s the market. It’s driven by AI. I think it will go higher because there’s going to be a lot more investing in AI. But you get this interim volatility if there’s some different changes in AI spending, as we’ve seen with meta.

Caroline Woods: Do you think the downturn that we’re seeing in meta, as you said, it’s selling off sharply. We’re also seeing weakness in Microsoft after earnings is just sort of a blip on the radar. And these are names that can continue to charge higher and bring the market higher with it. Or did you see something more concerning that, you know, maybe these red arrows could be here to stay for?

Ben Emons: Not necessarily. But we have to obviously take stock of that. The market does react sensitive to a company announcing a significantly more spending, but not demonstrating the revenues and the profits and sales with that spending, and that continues to be a contentious issue in the stock market itself. Definitely in the market that’s so concentrated by just a handful of names that keep announcing all this spending, but may not yet have to show the revenues for it. And I think that is definitely a worry if this continues. I think this particular item of, let’s say, this matter, Microsoft may be very specific to these earnings and sort of more particular investors that were involved in the stock buy. It’s driven this way. But so not calling it a trend here. But I do think we need to watch for that. If you keep spending on AI and we’re not generating revenues, there will be a realization in the market that’s saying we may have too much of too good, too high stock prices here that have to somewhat normalize to reflect the actual revenues, as opposed to all this promised revenues against the spending.

Caroline Woods: And it’s not just weakness in some of those names that we’re seeing today. We’re also seeing shares of Chipotle absolutely, absolutely plunging after earnings. Chipotle was out with some concerning comments about the consumer too, especially the lower to mid income consumers. They’re saying they’re dining out less, especially the 25 to 35-year-old age group, and said that this is a trend that’s occurring across all restaurants, as well as many discretionary categories. And we are seeing weakness in other names like Cava, Sweetgreen, Brinker today as well. How concerning is that as we think about the consumer who’s really been able to prop up this economy for?

Ben Emons: I think the concern there is that how the tariffs are affecting these types of consumers, that they’re making a change in, in what they like to eat at a different place. Right so in this case know, I think these companies have been affected by tariffs and have to pass on these costs in their meal, in their menus. And consumers are reacting to that and they see these prices go up and they think, well, I can maybe eat elsewhere for a little bit less. It tastes just as good as, say, a Chipotle. And therefore, you know, these companies reflect us in their earnings like, hey, we’re seeing people, you know, kind of backing away from our products at this point. At some point, these companies have to decide to bring their prices down also to compete with others. And that’s the other part of the story. Then the revenue projection goes down if you lower your prices. So I think that’s the dynamic here against this consumer, that maybe this particular cohort may not speak for all consumers, but I do think it’s a good example of how tariffs can shift demand. And that can affect the price.

Caroline Woods: So bottom line Ben, if tariffs are here to stay and could potentially get worse depending on how the US China trade talks go, who ultimately will feel the most pinched. Will it be consumers absorbing those prices or will it be the companies that can’t pass those prices on to the consumer?

Ben Emons: We’ll be leaning a little bit more towards the companies because of the competition that’s in our economy. Yes, they will pass on some of the costs to consumers or try as long as there’s demand for the products, they can keep passing on the costs. But as we’ve seen playing out with these types of examples, how quickly that can change it ultimately comes down to the companies that have to say, we have to bear the costs, and they will be mostly affected because it’s just too competitive in the marketplace. But the flip side to that is, is that if you do bear the costs as a company, then you have to maybe then hopefully not, but lay off people or at least reduce costs on their balance sheet. And that is the other negative side of that story. So Yes, I think the companies will bear the brunt of the tariffs.

Caroline Woods: OK we’ll leave it there. Ben Emons, Founder and CIO, FedWatch Advisors. Thank you so much.

Ben Emons: Thanks, Caroline. Great to be on.