It will take time for inflation to fire up again as the interest rates come down. Not that I believe 3% is a valid target for inflation (it should have been lower). They just don't care. If Biden wins and they take back congress they will put the screws to the American people anyway. If President Trump wins they will ratchet up interest rates and crash the economy so they can gain more seats in the congress during the midterm elections by blaming Republicans for the lousy economy.
The bright spot is that if President Trump wins I believe his policies will thwart their efforts to kill the economy. But there will be some pain in 2025 regardless who wins.
As far as call options are concerned there are probably a lot of investors with money in short term interest accounts that are taking risk capital to make sure they don't miss out on some short term stock market upside.
DISCLAIMER: not financial advice just one man's opinion
“This may all be true but with J Powell signaling interest rate cuts going into the election year it looks like they will prop up the market and let the crap hit the fan after the election is over.”
I’m not so sure that the Feds are signaling the number and level of interest rate cuts that the media is pretending. Wall Street has been yelling “pivot” ever since the first rate hike. The media cherry picks a couple of phrases from fed officials and takes them out of context to convince investors that rate cuts will happen early next year.
The problem with that thinking is rate cuts happen when things are bad, not when things are good. Which means things need to break or we go to war (not the proxy kind).
They have been propping things up all year with the reverse repo window. That stash of cash is just about exhausted from what I have seen. What magic mechanism will they have next to prop up the market and the banks?
The market exuberance over rate cuts and easy money should be concerning. Rate cuts happen to spur growth, at least that is how things used to work.
The economy continues to fail to look bad. Low unemployment, labor force participation is up, consumers are still spending (although drawback on luxury spending).
Flipside is people are working 2-3 jobs to pay their core bills. Credit cards are maxing out. 60% are living paycheck to paycheck.
Is it bad enough to justify cutting rates as consumers compete against inflation? Historically rate cuts happen after things get bad, looking at the core fundamentals there is no reason to justify rate cuts. It disgusts me to see the greedy market being exuberant about rate cuts, because that means things are going to get bad and this exuberance is just a melt up of the market.
The question is ...what is bad going to look like this time? I suggest watching the Reverse Repo Window to find out. If the banks are not stabilized by the time the funds in the Repo Window run out, likely around Feb 2024, what happens next? https://fred.stlouisfed.org/series/RRPONTSYD
Don’t assume that interest rates reversely affect the market. Rates are higher than they’ve been for over a decade, and the market is at an all-time high.
When the price of everything goes up due to inflation, that includes stock prices.