The Fed cuts another quarter point… Powell says a December cut “is not a foregone conclusion”… Powell and the Fed are watching AI and the jobs market “really carefully”… how to invest today

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In a 10-2 vote this afternoon, the Federal Reserve cut interest rates by a quarter point to 3.75% – 4.00%.

Beyond the interest rate reduction, Fed Chair Jerome Powell said the Fed will end the reduction of its asset purchases—“quantitative tightening”—on Dec 1.

The Fed will keep shrinking its mortgage-backed securities but will begin replacing maturing bonds with short-term Treasury bills.

In our Tuesday Digest, we noted that today’s cut was already baked into the market. So, we would be listening to Powell in his press conference for his comments on three topics:

• How would he characterize overall inflation? Is it concerning? Or is he relatively pleased that the pace of increase has slowed (though still rising)?
• Would he characterize the effects of tariffs on inflation as “pass-through,” or would Powell see tariffs exerting continued upward pressure for months to come?
• On rate cuts, would there be hints of more to come? Or would Powell stick to the familiar script of future policy being entirely “data dependent”?

On the first point about inflation, Powell echoed recent talking points, calling inflation “somewhat” elevated.

From Powell reading the official policy statement:

Inflation has eased significantly from its highs in mid-2022 but remains somewhat elevated relative to our 2 percent longer-run goal…

Near-term measures of inflation expectations have moved up, on balance, over the course of this year on news about tariffs, as reflected in both market- and survey-based measures.

Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2 percent inflation goal.

Powell did not say anything especially concerning about inflation, which was a green light for bullish investors.

As to tariffs and whether their impact would be pass-through or continuous, Powell said:

Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation.

A reasonable base case is that the effects on inflation will be relatively short-lived—a one-time shift in the price level.

But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed.

Here, that tack-on hedging language at the end is to be expected. Powell wants to leave himself an escape hatch if things change. But it appears the current presumption is that inflation will be a one-and-done.

So, here again, bullish investors got a green light.

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And that brings us to the third topic we were watching – hints of additional rates to come

And this is where bullish investors ran into a bit of trouble.

From Powell in this afternoon’s live press conference, referencing interest-rate policy at the upcoming December meeting:

So, in terms of how [upcoming data] might affect December, … we just don’t know what we’re going to get.

If there is a very high level of uncertainty, then that could be an argument in favor of caution about moving. But we’ll have to see how it unfolds…

A further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it.

He went on to say that there were “strongly differing views about how to proceed in December” during this meeting’s discussion.

Up to that point, the market had sharply risen, with all three indexes scoring new intraday all-time highs. But stocks fell across the board with Powell’s hawkish slant on December.

The Dow ended slightly lower, the S&P was flat, and the Nasdaq – which was down – recovered to end up about half a percent, which set a new all-time high.

Zeroing in on the reason for today’s cut – the labor market…

Powell didn’t paint the picture of a jobs market in freefall. Rather, he noted that the labor market “is not declining quickly,” but is more so cooling.

From Powell:

We are not seeing an uptick in jobless claims or a downtick, really, in job openings.

However, when asked about recent corporate layoffs and AI’s role, Powell said that he and the Fed members were watching this “really carefully.”

He added that we’re beginning to see a significant number of companies announcing they either won’t be hiring or will be laying off employees due to AI. And while this isn’t yet showing up materially in the initial claims data, Powell said that AI “could absolutely have implications for job creation.”

Let’s dig into this more. After all, we’re less concerned about what’s happening in the labor market today and more concerned about what the current trajectory of AI and layoffs suggests is coming tomorrow.

In past Digests, we’ve made the analogy to Ernest Hemingway’s novel “The Sun Also Rises.” When asked how he went bankrupt, a character replies, “Two ways. Gradually, then suddenly.”

While the jobs market losses due to AI might be in the “gradually” phase today, signs of “suddenly” are approaching…

On Tuesday, The Wall Street Journal featured a grim headline…

Tens of Thousands of White-Collar Jobs Are Disappearing as AI Starts to Bite

That’s ominous enough, but it’s just the latest in a string of such headlines – from just the last few days.

Here’s MarketWatch, also from Tuesday:

UPS has cut 34,000 jobs — a lot more than planned

And here’s CNN, from Tuesday:

Amazon just cut 14,000 jobs, and it’s not done

Next up is Fox from Tuesday:

Target sends out layoff notices to 1,000 employees

Then, earlier today, we saw this from NBC:

Paramount Skydance to cut more than 1,000 employees

If we widen our timeframe to “October,” we can add cuts from Rivian, Molson, Booz Allen Hamilton, GM, Chegg, and Meta, among others.

I suspect you already know what’s behind these cuts, but here’s the WSJ to spell it out:

Behind the wave of white-collar layoffs, in part, is the embrace by companies of artificial intelligence, which executives hope can handle more of the work that well-compensated white-collar workers have been doing.

But let’s put an even finer point on it.

Here’s Beth Galetti, senior vice president of people experience and technology at Amazon:

Some may ask why we’re reducing roles when the company is performing well.

What we need to remember is that the world is changing quickly.

This generation of AI is the most transformative technology we’ve seen since the Internet, and it’s enabling companies to innovate much faster than ever before (in existing market segments and altogether new ones).

Companies that can “innovate much faster” are generating strong earnings thanks to the same – or even increased – productivity despite lower headcounts.

Here’s FactSet, the go-to-earnings data analytics company used by the pros with the latest earnings information:

At this stage of the third quarter earnings season, the S&P 500 is reporting strong results.

Both the percentage of S&P 500 companies reporting positive earnings surprises and the magnitude of earnings surprises are above their 10-year averages.

As a result, the index is reporting higher earnings for the third quarter today relative to the end of last week and relative to the end of the quarter. The index is also reporting year-over-year earnings growth for the ninth straight quarter.

It’s easy to understand what’s behind this…

Humans: massive salary expense, benefits expense, sick days, vacation days, human error on the job…

AI/Robotics: one-time CapEx expense for AI software and/or robotics, marginal yearly maintenance expense, perfect job execution with no need for rest/breaks/benefits/and so on…

Today, automation keeps advancing, becoming faster, cheaper, and more widespread. Meanwhile, the latest AI models, including voice-native, multi-modal agents, are now replacing not just repetitive tasks but also an increasing share of white-collar cognitive work.

Let’s go to our technology expert Luke Lango, editor of Innovation Investor, with facts about where this will have the biggest impact on our labor force:

According to research from OpenAI, McKinsey, Goldman Sachs, and others, the jobs most exposed fall into three categories.

High-Risk (50–100% automatable in 10 years):

• Administrative support: 8 million jobs → ~6M at risk
• Customer service & call centers: 4M → ~3.5M at risk
• Fast food & self-checkout: 5M → ~3M at risk
• Transportation (drivers, dispatch): 4M → ~2M at risk

That’s already ~15 million jobs gone…

Medium-Risk (20–50% automatable):

• Retail, finance, legal services, manufacturing, education
  → another 8- to 12 million plausibly displaced

Low-Risk (hard to replace):

• Healthcare, skilled trades, construction
  → minimal short-term impact and marginal job loss

Total likely jobs displaced by 2035: 20- to 30 million

For context, the Bureau of Labor Statistics data shows that current total U.S. payroll employment measures around 160 million jobs.

So, we’re looking at almost 20% of jobs replaced by technology.

If you’re skeptical of mass job losses due to AI, we recently highlighted the perspectives of three AI experts

Anthropic CEO Dario Amodei, Google’s Demis Hassabis, and the “godfather” of AI, former Googler, Geoffrey Hinton.

A recent MarketWatch article highlighted how they view AI’s impact on the world today.

Hassabis is the most optimistic… Amodei is the most pessimistic about the economic consequences… and Hinton sees AI/robots as a threat not only to jobs but also to humanity.

One thing they agree on is that you should take steps to safeguard your job now.

From MarketWatch:

Hassabis (The boom):

• Learn to manage AI like a conductor manages an orchestra
• Position yourself at the intersection of AI and human needs

Hinton (The bust):

• Build that 18-month emergency fund right now
• Shift toward AI-proof roles — like fixing HVAC systems

Amodei (The ticking clock):

• You’ve got 18 months, not 18 years
• Launch that side gig yesterday

All good advice, but they forgot one – perhaps the easiest one…

Align your portfolio with AI

You know this, but we cannot understate its importance.

One of the best (and potentially only) economically protective steps we can take today is to align our wealth with the AI companies that will benefit from the transition to cutting-edge AI and/or a robotic workforce.

But – critically – this doesn’t mean all “AI” stocks are safe to buy today.

Our macro expert Eric Fry urges investors to deliberate about their AI picks. Not every company flashing “AI” will be a long-term winner. So, separating hype from substance is critical – especially at some of today’s valuations.

Eric recently published a “Sell This, Buy That” research package that urges investors to sell four market darlings. He’s allowed me to reveal three of them: Amazon, Tesla, and Nvidia.

In Eric’s report, he reveals why and what he’s buying instead. There’s significant overlap with our AI/robotics theme.

Here’s more from Eric:

I’ve compiled a list of three companies that I believe are “Buys.”

These are under-the-radar, early opportunities that can help you protect and multiply your money during make-or-break markets.

You can find the details of these companies – ticker symbols and all – in my brand-new special broadcast, free of charge.

Bottom line: Eric is right – we must be wise and discerning about which AI stocks we buy today. But equally important is that we not miss the big picture…

A world where AI is everywhere, affecting everything, is on our doorstep – with massive implications for your job, income, and wealth.

Here’s your reminder to prepare today.

One final way to play today’s bull

We’re likely in the late innings of this bull market, and history shows this is when the biggest stock market fortunes are made.

But not every stock rises together. The real gains come from finding the few breakout leaders driving the indexes higher.

That’s exactly what investing legend Louis Navellier and Andy & Landon Swan revealed yesterday during their brand-new presentation on their “Ultimate Stock Strategy.”

Louis’ quantitative Stock Grader system – trusted by hundreds of thousands of readers – has uncovered 676 stocks that could have doubled your money or more, including early calls on Apple, Amazon, and Nvidia.

Meanwhile, the Swan brothers’ proprietary data tracks millions of online conversations, search trends, and spending behaviors to spot real-world enthusiasm building around brands before Wall Street catches on.

When they combined their systems, the results were remarkable:

• 240 double-your-money opportunities over just five years
• Average gains of 244%
• And several trades that skyrocketed 10X or more

If you missed it live, you can still catch the free replay. Click here nowto see how Louis and the Swans’ “Ultimate Stock Strategy” can help you capture the market’s next major movers.

We’ll keep you updated on all these stories here in the Digest.

Have a good evening,

Jeff Remsburg