It’s easy to forget just how fast things can flip in the markets.
One week, we’re talking about imminent rate cuts, and the next, we’re watching the rug get yanked out from under that narrative.
This week’s final revision to second-quarter GDP came in hot, at 3.8% growth.
That’s not just good for an economy of this size, it’s exceptional.
And it means something pretty simple: The Fed is going to have a hard time justifying any rate cuts with numbers like that on the books.
Wall Street hates when the Fed refuses to play ball, but this time, the Fed has good reason.
Because when growth is that strong, it doesn’t just mean the economy is healthy.
It means inflation could spike, especially if rates get cut too soon.
Lower rates would throw gasoline on a fire that’s already flickering back to life. (And, by the way, the latest PCE inflation reports come out this morning. Those are a major economic indicator for the Fed.)
The whole “soft landing” crowd is still hanging on, but this GDP number doesn’t support that narrative.
It looks more like an economy that doesn’t need the Fed’s help.
But the jobs picture is a little murkier.
Hiring has clearly slowed. You don’t need to look further than monthly payrolls growth to see that.
But firing activity is low, and initial jobless claims are trending lower, with 14,000 fewer reported in the latest week.
That’s not recessionary behavior.
So, what gives?
I’ve got some thoughts on that, and how to play it smart.
Let’s Zoom Out for a Minute
Immigration is a wildcard in the labor market right now. Or rather, the crackdown on illegal immigration.
That’s one possible reason we’re seeing hiring slow without an uptick in jobless claims.
If fewer undocumented workers are available, hiring drops, but it doesn’t necessarily show up in traditional unemployment data.
There’s no pink slip if you’re not officially on the books.
That’s why the job market feels stuck in neutral.
It’s not expanding fast, but not breaking down either. And that middle ground makes it very hard to justify cutting rates anytime soon.
That’s exactly why equities are sulking. They’ve been living off the hope of a Fed pivot.
But with this combination of strong GDP and stale-but-stable jobs, that hope is fading fast.
Now — just to stir the pot a little more — there’s a storm building in Washington as a possible government shutdown looms.
This isn’t just the usual budget standoff, either; this one’s being weaponized.
The Trump team is reportedly looking at a potential shutdown as an opportunity to gut the size of the federal workforce.
If that happens, we’re not just talking about furloughs. We’re talking mass layoffs in Washington.
That would send shockwaves through the job market and the economy, especially in the short term.
So while the data right now doesn’t scream recession, a shutdown like that could change the picture in a hurry.
Here’s the takeaway:
- Growth is strong.
- Jobs aren’t falling apart.
- The Fed’s staying cold.
- And politics might light the next fire.
Red Alert
The big narrative on Wall Street is shifting.
If you’re betting on rate cuts, you might be sitting on the wrong side of the trade.
Bonds are waking up to that. Stocks are beginning to. And smart options traders are already adjusting their strategies.
This is where preparation really matters.
You’ve got to have a game plan that works no matter what the Fed does or what kind of chaos comes out of D.C.
Stay street smart,
Jeff Zananiri
P.S. Want to hone your edge in this market?
Join Aaron Hunziker Sunday at 4 p.m. ET in the APEX War Room, where he’ll break down the trades he’s watching, what’s moving right now, and how to position smartly in this environment.
If you want to stay sharp and a step ahead of the crowd, be there.
*Past performance does not indicate future results
