Federal Reserve Board Chairman Jerome Powell speaks during a news conference after a Federal Open Market Committee meeting on November 01, 2023 at the Federal Reserve in Washington, DC. The Federal Reserve left interest rates unchanged at a range of 5.25 percent to 5.50 percent, keeping rates the highest they have been in 23 years.
Kevin Dietsch/Getty Images
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Welcome back! Mark Zuckerberg got plenty of attention at UFC 298, including getting the meme treatment again.
In today’s big story, we’re looking at the chances of there being no rate cuts this year, and how the markets would react.
What’s on deck:
Markets: Capital One is set to snap up Discover Financial in a deal worth more than $35 billion.
Tech: Meet the 58 Black investors looking to back underrepresented startup founders.
Business: A suggestion for a new way to lay people off.
But first, a scary market proposition.
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The big story
Cuts are canceled
Aaron Schwartz/Xinhua via Getty Images
Don’t count your chickens before they hatch and don’t price in your rate cuts before they materialize.
“When will the Federal Reserve cut rates this year?” has been the prevailing question for months as investors and companies seek relief from the central bank’s 23-month war on inflation.
But mixed economic data coupled with a stock market that just won’t quit has brought whispers of a scarier question: Will the Fed cut rates this year at all?
It’s a shocking potential turnaround. Last December, Fed Chair Jerome Powell signaled that three cuts were on the table for 2024, which he reiterated earlier this month.
But some market experts say cutting rates this year is “essentially optional,” Business Insider’s Phil Rosen reports.
Investors have already had to adjust their expectations in 2024.
There’s now just a 10% chance that the central bank slashes borrowing costs in March, according to CME’s Fedwatch tool, down from 77% earlier this year.
Paramount / “Deep Impact”
As surprising as it would be for the Fed to skip cuts this year, it wouldn’t be a disaster for everyone.
BI’s Yuheng Zhan has a rundown of how different markets would react if rates stayed elevated.
Broadly speaking, large stocks should be alright, according to experts. After all, Big Tech companies’ year-plus efficiency kick has made them a lot less vulnerable to higher rates.
Bonds could struggle, though, with further delays on rate cuts raising the risk that debt markets suffer another meltdown like they did last fall.
The area with the most to lose is real estate. The residential market needs some rate relief to help spur sales after a quiet 2023, but the commercial sector holds the most risk.
The market has quickly devolved into a dumpster fire, with $2.1 trillion of debt tied to commercial real estate assets set to come due by the end of 2025.
It remains to be seen how contagious failures in that sector would be to other industries. Regional banks have plenty of exposure, as demonstrated by NYCB’s struggles earlier this year, but bigger lenders are fairly well capitalized in case defaults ramp up.
So while rates staying higher for longer isn’t the ideal scenario, it also wouldn’t be a death knell for financial markets.
What would prove disastrous, though, is a rate hike. The chances are slim — a senior economist at JPMorgan Private Bank puts the odds at just 15% or less — but it’s not entirely out of the question for some.
3 things in markets
Capital One is poised to acquire Discover Financial
Getty Images
1. Two of the US’s largest credit-card issuers are merging. Capital One is buying Discover Financial for just over $35 billion in an all-stock deal, the two companies said Monday. The transaction is expected to close in late 2024 or early 2025.
2. How did we get here? Four years after the pandemic crashed financial markets and drove inflation to four-decade highs, the US economy is going from strength to strength, even as peers like the UK and Japan slip into recession. Nobody’s quite sure what comes next.
3. Sell Nvidia. That’s the advice of Ark’s Cathie Wood, who believes the chipmaker stock has become overvalued. Nvidia’s shares have already surged nearly 50% year-to-date, powering it past Alphabet and Amazon to become the US’s third most-valuable listed company.
3 things in tech
From left: Paul Judge, chairman of The Open Opportunity Fund; Tessa Flippin, founder and managing partner of Capitalize VC; Claude Grunitzky, CEO of The Equity Alliance;; Gayle Jennings O’Byrne, cofounder and general partner of Wocstar Fund.
Open Opportunity Fund, Capitalize VC, The Equity Alliance Wocstar Fund
1. These Black venture capitalists are changing the VC industry. Diversity, equity, and inclusion initiatives have been heavily scrutinized recently, including in the business world. But Black VCs who specifically back startup founders of color remain undeterred.
2. The race to address the AI chip shortage is on. SoftBank CEO Masayoshi Son is reportedly trying to raise $100 billion to finance a chip production venture amid a frenzied scramble for supply across the tech sector.
3. Google just upped the ante in the AI war. Google is developing a new large language model that hopes to challenge OpenAI’s GPT-4. Called Gemini 1.5, the tool can process more than one type of data, including images, audio, and video. It also underwent enhanced safety testing.
3 things in business
Getty; Jenny Chang-Rodriguez/BI
1. There’s a better way to handle layoffs. While some job cuts are unavoidable, that doesn’t mean companies have to be cruel about them. Layoffs may seem like a way to boost the bottom line, but they can wind up being bad for business.
2. Russia’s wartime economy still looks resilient. Subsidies and government spending projects have kept growth afloat in the two years since Vladimir Putin invaded Ukraine, while Moscow is still bringing in revenue through its oil exports. But economists warn Russia could become “addicted” to military spending if the conflict drags on much longer.
3. The lab-grown diamond boom is over. Prices for man-made gems are likely to tumble this year, analysts told BI. Lower-priced retailers like Walmart and Pandora have started aggressively pushing lab-grown stones, creating a glut in supply.
In other news
Why young men are ‘starvemaxxing’ to look like their chiseled, masculine idols.
If you are waiting to buy an affordable home when rates drop, you’re out of luck.
The Russian pilot who defected to Ukraine with an Mi-8 helicopter was shot to death in Spain.
What’s happening today
Today’s earnings: Walmart, Home Depot, and other companies are reporting.
Former President Donald Trump participates in Fox town hall.
The Insider Today team
Dan DeFrancesco, deputy editor and anchor, in New York. Jordan Parker Erb, editor, in New York. Hallam Bullock, editor, in London. George Glover, reporter, in London. Grace Lett, associate editor, in Chicago.
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