Full Video Transcript Below:

CAROLINE WOODS: The Fed is widely expected to cut a quarter point next week, but there is starting to be this narrative of potentially a half-point move. What camp are you in, Art?

ART HOGAN: Well, I think the Fed’s going to cut 75 basis points this year. They may well front-load that and go 50 basis points at this meeting and take the October meeting off. Then go another 25 basis points in December. The reason I think they would front-load it is we saw the weakness in the labor market tick up in the July jobs report. Had the Fed had that report, which came out two days after the July meeting, they probably would have cut rates already.

So I think that when we think about the cadence of what the Fed would like to do, there’s probably about 125 basis points that they’d like to remove from the Fed funds to get to a neutral level where they’re not restrictive or stimulative. If they can get that done by getting 75 basis points done this year, they may well do that right now. The CME FedWatch tool shows that there’s about a 90% chance that they’ll go 25 basis points and a 10% chance to go 50 basis points.

CAROLINE WOODS: So, Art, if and when the Fed does cut, what sort of market reaction do you think that we’ll see? Is it already priced in at this point?

ART HOGAN: Yeah, that’s such a great question. I think you framed it up perfectly. The market is anticipating this and has been since the July jobs report came out. Therefore, we’re starting to see small caps do better, mid caps do better, interest-rate-sensitive housing stocks do better. I think that will continue with the confirmation of the rate cut and the language coming out of the press conference in the statement. And what we see in the new plots that we’ll get.

So I think we’ve already started to see some of that reaction. It’s beneficial to small caps—they’ve been underperforming for quite some time. Housing stocks have been under pressure, and they’re starting to see a bit. I think the interest-rate-sensitive sectors will continue to broaden out this market.