Bigger rate cut would add 'vigor' to stocks, analyst says

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STORY: :: Lisa Bernhard, Reuters

:: Eric Lynch, Managing Director, Scharf Investments

Traders' bets on a 50-basis point rate cut jumped to roughly 50% on Friday, CME's FedWatch Tool showed.

Prior to this, most bets were on the Fed sticking to a smaller 25-basis point cut, especially after this week's news of slightly higher core consumer and producer prices in August.

"It's reflective of what we've seen since the third quarter started," said Lynch, "which is a lot of consternation from investors about where the economy is going, where inflation is going to land and what the Fed can do in terms of rate cutting. And so stocks, the VIX and now the CME FedWatch Tool is jumping all over the place."

Speaking with Reuters' Lisa Bernhard, Lynch also discussed how stock gains don't necessarily correlate with presidential policy.

While former President Trump has invoked the "drill, baby, drill" mantra regarding U.S. oil production, Lynch noted that the energy sector was actually "the single worst [performing] sector during his presidential term."

And for Biden, who's 2020 campaign platform opposed new fracking on federal land, energy "has been his best [performing] sector."