Is the Fed Playing Chicken with the Economy?

Is the Fed flying too close to the flame? In this episode, Scott Bauer returns to break down market reactions to strong GDP data, meme stock madness, and whether rate policy is heading for a collision course.

Summary – IBKR Podcasts Ep. 277

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jeff Praissman 

Hi everyone. This is Jeff Praissman with Interactive Brokers. It’s my pleasure to welcome back to our podcast studio Scott Bauer, Prosper Trading. Hey Scott, how are you? 

Scott Bauer 

Hey Jeff. I am great. It’s summertime. How are you? 

Jeff Praissman 

I’m good. I’m good. And it is always a pleasure to have you in here for our five-minute podcast. We always just catch up and talk about the past five days in the market and kind of what’s ahead. A lot of stuff going on, as always. 

Scott Bauer 

This is a big one. We talk about times of the year that can really set the tone for the rest of the year. This week is really major. 

Jeff Praissman 

Yeah. And looking back at the past week, what key factors have driven the major market indices’ performances, and how did different sectors respond to these catalysts? 

Scott Bauer 

I think over the past week-or several weeks-the big thing has been movement with tariff negotiations. I think the market has really accepted what is going on and is looking at this as the best of a worst possible outcome. And so I think that’s why we’ve seen a lot of complacency here and a lot of stocks get back to all-time highs. Tech stocks have really recovered. But obviously, we have to mention what has happened with some of these meme stocks and maybe some of the animal spirits that have been out there, because that really-over the last several weeks-has come to the forefront once again. 

Jeff Praissman 

And you mentioned tech and the meme stocks. Are there specific stocks-or even sectors-that showed the most interesting patterns? They may not necessarily be going up, but are they, over the last five trading sessions, and what technical indicators? 

Scott Bauer 

Look at some of the big financials, the way they’ve hung in there or responded-Goldman Sachs, JP Morgan, some of the others. Boy, they are strong. I’m not sure if the Fed changing rates at some point is going to affect it, but boy, these financials look great. 

Jeff Praissman 

And you know what, there’s been some economic data released-correct? Especially even today-and, or corporate-you mentioned earnings. Do you think they’re going to have lasting implications for the market direction in the coming days? 

Scott Bauer 

I think we might, because this data we’re getting shows that the economy is really humming along. We’ve seen some improvement in some of the eco data. And then, as you said, this morning we got GDP-much better than expected. That’s good. It’s healthy for the economy. But bottom line is, this strong data is not going to make any decision for the Fed on what to do with rates-it’s not going to make it any easier for them. In fact, you know what it may do is make them pause longer. 

Jeff Praissman 

Yeah, that makes a lot of sense to me. And we just talked about the past week and today, but looking forward-because we always kind of like to do the next five days as well-are there any macroeconomic factors you think will have a big influence on market sentiment? 

Scott Bauer 

So obviously, we have a big jobs number on Friday, and that number will not have anything to do with what the Fed does for this meeting. But going forward at the September meeting-depending on what that jobs number is-if that is a strong number as well, on the heels of the rest of the decent eco data that we’ve gotten, we probably will see a shift in the FedWatch tool and the Fed’s thinking for a potential cut in September.  

So we’ve got that. We also obviously have the August 1st deadline, which I know that President Trump came out and said is not going to be extended. I don’t know that’s going to impact the market so much because the market has really taken the tariff situation into what we’re looking at going forward. And like I said, it’s unbelievably resilient. 

Jeff Praissman 

Yeah. And are there any particular-you mentioned tariffs, that’s always in the conversation these days-but are there any particular risk factors or opportunities that you’re watching closely for the upcoming week? 

Scott Bauer 

I absolutely think there’s risk. I personally think volatility is too low, just with all of the macro data that’s coming out-with the tariffs, with interest rates here. So I still think that there is some downside risk to the market.  

Now that being said, with volatility where it’s standing-and I’m not just talking about the VIX, I’m talking about vol in the indices, vol in individual stocks-personally, I think it’s too low, and it’s a great time for me to maybe stay in my long positions or stay long overall, but just buy that cheap protection. We’ve talked about it before, Jeff, and- 

Jeff Praissman 

Yep. 

Scott Bauer 

It’s a mindset, right? Buy when you can and not when you have to. 

Jeff Praissman 

Exactly. This has been great as always, Scott. And for our listeners, you can find more from Scott at ProsperTrading.com. Also, on our website-if you go to Education-you can find all the past podcasts we’ve done. And my understanding too is you swung by our Cents of Security podcast the other day as well. Is that correct? 

Scott Bauer 

I’m trying to get all over the place here. 

Jeff Praissman 

I love it. I love it. All right. Until next time-thank you, Scott. Appreciate you coming by. 

Scott Bauer 

Thanks very much, Jeff. 

Jeff Praissman 

Yep.