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Fed rate cut talk is premature: Money manager

Investors are increasingly hoping the Federal Reserve will start cutting rates in the first part of next year. But that talk is premature, says Jeremy Bryan, Senior Portfolio Manager at Gradient Investments. Bryan he doesn't think the Fed will cut "unless they see writing on the wall that we're slowing aggressively and falling into a recessionary camp." Bryan argues he doesn't want as many cuts as some on Wall Street are expecting because "that means economic trends are pretty bad."

Watch the video above to find out why Bryan thinks "there's a pretty good backdrop for the overall stock market."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JARED BLIKRE: You might have been listening to our last conversation about Fed and rate cuts. I'm just wondering, where do you see all of this going? We've got another Fed meeting in just about a week, 10 days here.

JEREMY BRYAN: Yeah. I think the discussions, the cuts are a little premature. And the reason why I say that is I don't think the Fed's cutting unless they see writing on the wall that we're slowing aggressively and falling into a recessionary camp. You know, historically-- if you look at history, history tends to tell you that they go up incrementally. They stop for a little bit. And then things get materially worse than they go down really fast.

I kind of hope that doesn't happen, right? At the end of the day, I want a resilient economy. I want a consumer that's still spending. I want corporate earnings to be growing relatively well. And so a pause area, where they can just sit and say, hey, we've got inflation at least coming under control, maybe we can have one cut. I don't want a scenario where we have the amount of cuts that are listed right now just simply because I think that means economic trends are pretty bad. And I just don't see why we're there yet.

So my anticipation is much more a gradual cut. I think Q3, you know, if you're throwing a number out there, that's probably fine. I mean, that's largely a guess at that point. But from our perspective, we'd rather see them be stable here right now, because it means the economy is relatively working well.

JULIE HYMAN: So what does all of this imply for where stocks have been going, Jeremy, right? If we've seen this rally that's been happening on the back of these expectations for early year rate cuts, does that-- I mean, we've gotten a little Rocky over the past couple of days, but do you think things are going to get worse?

JEREMY BRYAN: No. No. I honestly think we've-- you know, if you think about just some of the bear cases, right? The bear case was inflation's going to rear its ugly head again. And so the Fed's going to have to be more aggressive going forward. That doesn't seem to be the sentiment as of right now.

If we were bringing down inflation, we were going to have significantly slowing and probably contracting jobs. That hasn't happened. And then we also had the threat of government shutdown less than a month ago that that kind of got delayed. So if you're looking for a bear case right now, you have to assume things are changing in trajectory rather than staying the course. And our thought right now is things could absolutely stay the course.

And so in that scenario where we have a resilient consumer that still has a job, where we have corporate earnings that grew for the first time last quarter and are expected to accelerate going forward, that's a pretty good backdrop for the overall stock market. And I'm not saying we're going to have a 30%, 40% year off of a 20% year that we've had right now. But certainly, the trends, if they sustain as they are right now, are actually probably more favorable for the markets than unfavorable.

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