Markets, investors can 'settle down' after Fed cut: Strategist

US stocks gain as investors digest the Federal Reserve’s 50-basis-point cut. Academy Securities head of macro strategy Peter Tchir joins Seana Smith and Brad Smith on Morning Brief to discuss how to navigate the market (^DJI,^GSPC, ^IXIC) as the interest rate cutting cycle kicks off.

Tchir says the market could be “a little bit ahead of itself,” rallying higher after the Fed decision: “I was expecting 50, and I thought the Fed would try and make it a hawkish 50 and you saw that attempt — they had the dissent [from some Fed officials], they moved rates lower, the projections lower — but nowhere near to what the market was pricing at the end of 2025.”

“But, they did cut 50, and I think that's giving a big impetus to the market, and we're going to see positioning play out," the strategist tells Yahoo Finance, expecting markets to “settle down a little bit from here. Everyone can calm down” after investors have had some time to digest the Fed’s action.

The strategist acknowledges there is some risk in the rotation trade but explains his view that the Russell 2000 (^RUT) small-cap index could become momentum:

“They're relatively small. I think there's very little liquidity in this market… Money flows into the ETFs. You've got the day trading. So I think that will push things higher than they should. So I think you could get a really nice response from the Russell 2000 if it attracts the momentum cash.”

In regard to the bond market (^TYX, ^TNX, ^FVX), Tchir diagnoses its trends as “largely gridlock” as the market waits for the presidential election. He adds, “I don't think that derails much of the equity rally. But again, it will slow down those mega-caps.”

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Naomi Buchanan.

Video Transcript

Time.

Now for today's strategy session, us stocks in the green following the Fed's big cut.

But with equities hovering near record highs has policy easing already been priced in joining us.

Now, we want to bring in Peter Chur, he's the head of Macro Strategy at Academy Securities.

Peter.

Let's start with the market's reaction to all this yesterday.

We had moved to the downside this morning.

We're looking at gains across the board.

Does this make sense to you or is the market maybe getting a little too ahead of itself?

I think it's a little bit ahead of itself.

How I've been kind of looking at this is I was expecting 50 I thought the Fed would try and make it a hawkish 50 you saw that attempt by, they had the dissent.

They moved rates lower, the projection lower, but nowhere near to what the market was pricing at the end of 2025.

And Powell's press conference wasn't Super Dovish, but I think the reality and everyone just keep steering, but they did cut 50 I think that's giving a big impetus to the market and we're gonna see positioning play out.

I think we settle down a little bit from here.

Everyone can calm down.

And then I actually think you want the rotation trade, I think you want value, you want small caps.

And I think some of the A I and semiconductor problems we've been seeing res rather than kind of extending this rally.

What's gonna give you a little bit more conviction in that trade talking about the fact that it does have legs from here.

So I, I think data like this morning we actually had good jobs claims, right?

They came down a little bit.

So I think people got a little bit too pessimistic on the jobs data.

I've been arguing that how we do these seasonal adjustments has been wrong.

We use a 58 year average and has two problems.

One is, it includes the COVID shutdown and stuff.

So we add too many jobs and the other part has been that, um, it really is based on geographic conditions that no longer exist, right?

We used to add jobs in January or February March because the northeast was shut down construction and we add them back and, or, and then we take them away in the summer.

So many people have left the northeast.

The housing construction in particular is actually in the south where they have to shut down.

So I think we get two optimistic jobs in the early part of winter, two week in the late part of summer and we're gonna get a normal thing and that's gonna give everyone kind of this.

I'm like, ok, the fed is not gonna do much more, but the economy is fine.

That really does.

Well, I think for the small caps and value stocks, I'm gonna create that checklist and pin it to my desk here, Peter here on the day and we'll check back in on that.

But, you know, all these things considered what you just mentioned, the rotation trade, how much of that rotation trade also assumes and has a certain percentage of risk in that basket?

You know, there's some risk in it.

What I I think though, when I look at it, you look at the pe s the valuations, the one thing, the last 2 to 3 years, maybe longer seems everything is momentum, right?

And A I became the momentum trade mega caps have become the momentum trade.

If we can get an extended rally, say, you know, 23 weeks, we've already had five or six days.

I think in the Russell 2000, I think there's a chance that these become momentum, they're relatively small.

I think there's very little liquidity in this market.

There's very little true depth of liquidity, money flows into the ETF S. Um you've got the day trading.

So I think that will push things higher than they should.

So I think you could get a really nice response from the Russell 2000 if it attracts the momentum cash.

And on the flip side, let's talk about the bond market, the risk there.

What do you see?

So, I think we go back towards 4% on the tens.

So yes, the fed is going to do a pretty good job of trying to control the front end.

But I think you see a steeper yield curve, right?

They're not, they don't care that much about inflation.

I think as we now get past this fed meeting, we can really start focusing on what's likely to happen in DC.

I think it's largely gridlock, but even under gridlock, we're just gonna keep growing the deficit.

No one cares about the deficit.

We have another debt ceiling issue.

I think you'll see pressure on the long end of the yield curve with tens, 390 to 4%.

So a little bit, I don't think that derails much of the equity rally, but again, it will slow down those mega caps.

I mean, what is that said though for some of the policy that's also going to be impacting businesses.

I mean, we think about the even energy policy or, or Chips Act and some of the dollars that have been put forward to, to really impact companies ranging from Tesla to NVIDIA and the entire Socks counterparts there.

Yeah, and that's where I'm really torn.

What I would love to see is I think the Chips Act was just a good first step.

If we have this friction with China and I do believe we have ongoing friction.

It's going to be a battle about semiconductors A I sustainability.

We need to support those industries.

We need to get the foundries on board.

We need to be making our own chips.

So I think that money has to go but it it's going to be very expensive to build those.

I think we need better strategies for getting to sustainable energy, including maybe more drilling.

In the meantime, more spending on traditional energy sources to get us over that hump.

So I think we need some concerted policy.

I think we get some of it.

But again, if we do get some degree of gridlock, it won't be enough.

Peter going back to what you just said a minute ago when we talk about the bond market, the 390 to 4% is what you think that level is gonna be if we do push above 4% on the 10 year, is that when it becomes a bit more problematic for the Yeah, I think as you start going above 4% and what does scare me is if you go back to last fall, we went from about 4% to 5% on tens and it didn't matter what the economic news was on any given day.

Good news bonds rallied a little bit, then sold off, bad bonds, sold off right from the start.

And I am worried that we do see periods like that too many people get long duration.

People miss the trade, so they're now piling in here.

And I think it, every once in a while it just hammers home that no one in DC cares about the deficit.

And as we get to this debt ceiling debate, you know what it's gonna be, everyone grabs and both sides get more money to spend to kick the debt ceiling down the road.

And that I think is what spooks the bond.

So I think there is a much bigger risk that we gap to 5% than that we get to 3.5%.

And so with that in mind, I mean, you were mentioning earlier and, and this kind of ties into bonds as well.

Are there other international bonds then, then you would be looking for to, to kind of counterbalance that strategy, you know, iii I think right now what you wanna do is move into the 2 to 5 year sort of range on treasury.

So I don't think you wanna be money markets, those are coming down.

I think we've already had the good running duration.

So you give up a little bit in yield, moving in that 2 to 5 year.

If I'm right and we start backing up, those aren't gonna back up as much, right?

The real fear is gonna be 10 year and 30 years.

So I would definitely avoid like the long end or TLT as an ETF that people like, um, that's, I think where the extreme is.

So you want that 2 to 5 year?

I like the US dollar.

I like the US treasuries better than other bond markets right now.