MW 'This Fed has its head in the sand' - but at least now we know where to invest

By Louis Navellier

Worrisome housing and job markets suggest that the central bank should have cut interest rates more

The Federal Reserve isn't facing economic reality.

Clearly, the housing industry needs the Fed to cut interest rates further to help the housing market recover.

I'm on record accusing the U.S. Federal Reserve of being ostriches with their heads in the sand. The Federal Open Market Committee (FOMC) on Wednesday cut key interest rates by 25 basis points, as was widely anticipated. All members voted to cut rates, though FOMC member Stephen Miran was the sole "no" vote, as he preferred a cut twice that amount.

So did I.

The FOMC statement was dovish, saying, "Job gains have slowed and the unemployment rate has edged up." It then added that "downside risks to employment have risen." The problem is that many of the job losses are construction jobs, as builder sentiment remains poor.

Since President Donald Trump is a builder, I expect that he will bash Fed Chair Jerome Powell in the upcoming days. Remember, Trump said: "I think you have a big cut" and "It's perfect for cutting." And if you are in the housing industry, or in any one of the upstream or downstream industries that depend on housing - from timber products to big-box stores - you probably think, like me, that this Fed has its head in the sand.

The truth is, the situation remains dire in the U.S. housing sector. Recently, the Commerce Department reported that new housing starts declined to a 1.307 million annual pace in August, down substantially from a revised 1.429 million annual pace in July. Economists were expecting housing starts to come in at a 1.37 million pace in August, so the drop was bigger than expected.

The near future does not look promising. Building permits declined to a 1.312 million annual pace in August, down from a revised 1.362 million annual pace in July. Clearly, the housing industry needs the Fed to cut interest rates more to help the housing market recover.

But these Fed governors are all over the place. The "dot plot" of selected FOMC showed six FOMC members forecast no further key interest rate cuts. A nonvoting FOMC member objected, saying there should not have been any key interest-rate cut. Two FOMC members forecast one additional key interest rate cut this year. The hawks on the FOMC remain in charge, which caused Treasury bond yields to rise and helped the U.S. dollar DXY firm up.

One reason for the Fed's smaller interest-rate cut is that the Commerce Department reported that retail sales rose 0.6% in August, which was substantially higher than economists' consensus estimate of a 0.3% increase. Excluding vehicle sales, retail sales rose an even more impressive 0.7% in August. Online sales surged 2% in August. Back-to-school sales apparently boosted clothing and accessories 1% in August, and sporting goods rose 0.8%. Nine of the 13 categories surveyed increased in August, which is a good sign that consumer spending is healthy. July retail sales were also revised up to a 0.6% increase, up from 0.5% previously reported.

But retail sales can be fickle. The housing and job markets are not fickle. They are responsive to the interest-rate environment and interest-rate policy. And that's another reason why this Fed has its head in the sand.

Where to put your money

Investors should make sure that their best defense remains a strong offense.

So what does an investor do now?

Continue to load up on gold (GC00) stocks due to a lack of worldwide confidence in central banks. I am recommending eight gold stocks. The best one is Kincross Gold $(KGC)$. The other gold stocks I recommend are Agnico Eagle Mines $(AEM)$, Alamos Gold $(AGI)$, Caledonia Mining $(CMCL)$, Eldorado Gold $(EGO)$, Idaho Strategic Resources (IDR), OR Royalties $(OR)$ and SSR Mining $(SSRM)$.

An investor should also ensure that their best defense remains a strong offense. AI-related monopolies - including AppLovin (APP), which provides AI-software solutions; Nvidia (NVDA) in chips; and Palantir Technologies (PLTR) for AI automation - should be core holdings because they are characterized by incredibly strong forecast sales and earnings.

The AI data center build out is real. Some of the best stocks are Argan $(AGX)$, Comfort Systems $(FIX)$, Emcor Group $(EME)$, GE Vernova (GEV), Power Solutions International $(PSIX)$, Quanta Services $(PWR)$, Super Micro Computer $(SMCI)$ and Vertiv Holdings $(VRT)$.

I also like Robinhood Markets (HOOD) because the SEC is clarifying the rules for crypto securities, in which Robinhood is a leader.

The U.S. remains an economic oasis compared with the rest of the world, which is largely in a demographic decline, led by China, which is characterized by hideous deflation on both the wholesale and consumer levels. Northern Europe also has demographic issues and is failing to assimilate immigrants, which may also put it in a deflationary environment.

I am expecting a global interest rate collapse that would trigger capital flight to the U.S. and drive Treasury yields lower in months.

As a result, I am still expecting a global interest rate collapse that would trigger capital flight to the U.S. and drive Treasury yields lower.

Unfortunately, this Fed is ignoring the deflationary forces spreading around the globe, as many major economies - including Britain, France and Germany - follow Asia's demographic decline that ends all hope for economic growth. It is possible that AI will continue to boost productivity and GDP growth, despite demographic problems. However, a The Wall Street Journal recently cited that Stanford University computer science majors are struggling to get jobs, signals how uneven the AI revolution has become. But even if AI-driven productivity helps grow GDP, it won't matter. This Fed will still have its head in the sand.

Louis Navellier is founder and chief investment officer of Reno, Nev.-based Navellier & Associates,Inc., a SEC-registered family office that manages more than $1 billion in assets.

Disclosures:

Navellier & Associates owns Kincross Gold (KGC), Agnico Eagle Mines (AEM), Alamos Gold (AGI), Caledonia Mining (CMCL), Eldorado Gold (EGO), Idaho Strategic Resources (IDR), OR Royalties (OR), SSR Mining (SSRM), AppLovin (APP), Nvidia (NVDA),Palantir Technologies (PLTR), Argan (AGX), Comfort Systems (FIX), Emcor Group (EME), GE Vernova (GEV), Power Solutions (PSIX), Quanta Services (PWR), Super Micro Computer (SMCI), Vertiv Holdings (VRT), and Robinhood Markets (HOOD). Louis Navellier and his family own, Kincross Gold (KGC), Agnico Eagle Mines (AEM), Alamos Gold (AGI), Caledonia Mining (CMCL), Eldorado Gold (EGO), Idaho Strategic Resources (IDR), OR Royalties (OR), SSR Mining (SSRM), AppLovin (APP), Nvidia (NVDA),Palantir Technologies (PLTR), Argan (AGX), Comfort Systems (FIX), Emcor Group (EME), GE Vernova (GEV), Power Solutions (PSIX), Quanta Services (PWR), Super Micro Computer (SMCI), Vertiv Holdings (VRT), Robinhood Markets (HOOD) via a Navellier managed account and Nvidia (NVDA), and Palantir Technologies (PLTR) in a personal account.

More: Here's the case for equities to 'explode higher' in October. Buy any dips along the way, says JPMorgan.

Also read: Inflation fears surge to their highest levels since 'liberation day' as Fed cuts rates

-Louis Navellier

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

September 18, 2025 11:35 ET (15:35 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.