What the Fed Raised on Wednesday

By TradeSmith Research Team

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Higher for longer confirmed… And in stocks, too… Apple seeks an A.I. shortcut… But it may come back to bite them… The gold business has never been cheaper… Time to pull the trigger on A.I.’s “Biggest Bull Market”…

By Michael Salvatore, Editor, TradeSmith Daily

The Federal Reserve didn’t raise interest rates on Wednesday. But nobody really expected them to.

Instead, it did something arguably more impactful for investors over the next several years.

In its quarterly estimate of projections, the Federal Reserve cleared the air and made a big admission.

It raised its expectations for interest rates and inflation over the next year.

Its “dot plot” — a chart of Fed board member expectations for interest rate levels at certain times — showed the Fed still expects three rate cuts for 2024, but we’ll only see two in 2025, down from three. Same goes for 2026. And over the “long run”— 2027 and beyond — the Fed now expects interest rates to be at 2.6%, up from 2.5%.

On the inflation front, a larger number of Fed participants expect inflation to be between 2.1% and 2.4% next year, with a fewer number expecting a rate below 2%.

These might seem like small differences. And to be clear, the Fed gets projections wrong all the time.

But by saying it expects higher inflation and fewer cuts, the Fed has confirmed the idea of “higher for longer.”

And at the same time, a higher long-run benchmark rate target implies it will eventually lift its inflation target up from 2%.

What does that mean for you?

❖ Nothing but good stuff…

This admission from the Fed, that this new era of higher inflation and higher interest rates is real, means we can stop waiting around for a return to the good ol’ days that isn’t coming.

But we should take that news in stride.

If you miss that old era of zero interest rates and sub-2% inflation, I urge you to stop and look around a moment…

Stocks are at all-time highs, and the upward trend is strong. The most important measures of inflation — food and energy — are stabilizing.

For the first time in decades, savers can get a risk-free, real return on their money. And the U.S. continues to add jobs — even if the government’s estimates on those job gains are more than a bit off. And unemployment is slowly ticking up.

Yes, interest rates are still high. But as we’ve shown you before, the economy is digesting these higher rates quite well.

Calls for recession are shrinking by the minute… And even traditional risk hedges, like gold, are soaring.

If this is a mixed bag, most of what’s in that bag is peanut M&Ms. (Pick your poison — I happen to like peanut M&Ms.) And if I happen to instead pull out a baby carrot every so often, I can say it’s ruining my Halloween.

❖ The S&P 500 made a new high as the FOMC news broke…

…Throwing cold water on my call for a correction in the S&P 500 last week.

Here’s the latest on that chart.

The S&P 500 did break down from the rising wedge, as we suggested it might last week. Since that happened, though, stocks have rallied to new highs.

It’s broken back into the rising wedge pattern, slicing through resistance with ease.

Meanwhile, the Relative Strength Index indicator continues to make a series of lower highs…

I’m not totally convinced we’re out of the woods yet on this one. Waning momentum on new highs is still a troubling sign. One could also see it as a sign of consolidation… but to me, the market still looks vulnerable to correction here, eventually.

Yes indeed — your editor is not right all the time, and I don’t pretend to be. We could look to our “trade for peace” idea for one example… among others.

Though otherwise, we’ve had a good run since starting to write TradeSmith Daily, with strong calls on bitcoin (from $34k), uranium stocks (which made new local highs in February), and calling the top on 10-year Treasury yields (down over 14% since).

[If you’ve made money from reading any of those calls (or even counter-trading my wrong calls) please write me and let me know at [email protected]. That’s an evergreen invitation.]

Regardless, there are lots of ways to hedge in this market. And one way is to simply find special situations in specific areas and make short-term plays there.

I recommend my new colleague Jonathan Rose for guidance on that. Every weekday at 11 a.m. Eastern, he’s broadcasting a new trading idea for free to a select group of viewers — with plenty of data to back up each play. Sign up to receive those ideas with one click right here.

❖ Apple’s found a way to play “catch-up” in the A.I. race…

And it’s to grab hold of the coattails of other big tech companies.

Reports this week revealed Apple is in separate talks with both Google and OpenAI to integrate their existing large language model products into Apple’s iPhone.

iPhone users, who have long treated Siri as a mere nuisance they unintentionally activate every so often, may rejoice at this news. And for AAPL and GOOG investors, it may just be a saving grace.

We’ve covered recently the woes facing arguably the two most well-known U.S. tech brands. Each of them has trailed the market in 2024, where last year they led stocks by multiples:

A mutually beneficial agreement to integrate Google’s Gemini into iPhone could help them both out. Google would presumably be paid for this deal (unlike the search deal, which we’ll get into), and Apple would presumably sell more iPhones if it can tout a digital assistant that’s truly revolutionary.

But there’s risk in such a deal, too. Look no further than a similar arrangement made decades ago that now has Google in regulatory crosshairs.

Google is estimated to pay Apple $18 billion a year to be the default search engine on iPhone. For those keeping score, that’s roughly 5% AAPL’s annual revenue.

This deal has been the subject of ire from the U.S. Justice Department, which claims Google has a monopoly on search engines because of this deal.

It doesn’t take much to imagine this A.I. deal causing similar issues down the line, if not much sooner.

And as I write this, another antitrust lawsuit has come down against Apple for years-long moves that regulators and watchdogs see as limiting consumer choice.

Big tech companies clearly think they can outfox regulators, and they just might in the end. But this level of scrutiny stands to materially affect both Apple’s and Google’s businesses, making them not likely to provide big, fast gains in today’s market.

❖ Take instead, for example, this powerful arbitrage in gold stocks…

Precious metals miners are some of the most hated businesses on the planet. And it’s not hard to see why.

The business is incredibly capital-intensive. It’s a honeypot for regulatory agencies, environmental activists, political meddling, and outright corruption.

You know what else they are? Dirt cheap, relatively speaking.

We can see the relative outperformance of gold against the Gold Miners ETF (GDX) and the Junior Gold Miners ETF (GDXJ) since 2020 in this chart:

Gold prices, which trailed gold stocks in 2020, have now broken ahead as a clear leader. They’ve made new all-time highs while gold stocks are still down 33% from theirs.

You can probably guess what’s changed from then to now: interest rates.

As financing has grown more expensive, gold mining stocks have suffered greatly. Junior miners, especially, have been through the ringer since their peak in the summer of 2020.

Are they ready to play catch-up? Maybe not right this second. But when the Fed makes its first rate cuts, you can bet that gold mining stocks will catch a bid.

Because as gold prices continue to run higher, the profits in gold mining companies get bigger and bigger. I wouldn’t be surprised to see some individual gold stocks well outperform the metal itself in the coming years.

❖ There’s even more short-term trade opportunities up for grabs in A.I.’s “Biggest Bull Market”…

According to InvestorPlace Senior Analyst Luke Lango, the biggest trading opportunity right now in a niche corner of the A.I. space that few investors are paying attention to.

One investment house has called it the place where we’ll see the “biggest bull market” in A.I.

But what you should know is these are volatile, early-stage names.

So Luke’s not looking to buy and hold these companies forever.

Rather, he’s using a quantitative method to trade these stocks for quick-hit gains of 10%, 20%, and more in a matter of weeks, if not days.

And I should emphasize that all these gains are just trading stocks – nothing more complicated than that.

It’s all due to sudden breakthroughs that can hit these companies seemingly out of nowhere, causing huge short-term reactions in their stock prices.

But with Luke’s method, he’s able to detect early signs of these breakthroughs well before they take place.

Luke’s going live to share the latest results for his method and reveal the tiny subclass of stocks he’s targeting in a webinar next Wednesday, March 27, at 8 p.m. Eastern.

Attendance is free, and signing up now will ensure you get to hear one of Luke’s bonus A.I. plays that he believes could 10x your money over the longer haul.

Go right here to learn more.

To your health and wealth,

Michael Salvatore
Editor, TradeSmith Daily