A Central-Bank Power Shift Is Coming
The Weekend Edition is pulled from the daily Stansberry Digest.
For about 20 minutes on Wednesday, the market looked a little rattled...
The catalyst was President Donald Trump reportedly telling a room full of Republican lawmakers on Tuesday that he plans to fire Federal Reserve Chair Jerome Powell "soon."
Mr. Market isn't a fan of surprises. The S&P 500 Index went from being up 0.2% on Wednesday morning to down almost 0.6% in about 20 minutes. But then it reversed direction after Trump told reporters in the Oval Office that firing Powell would be "highly unlikely."
By the end of the day, the benchmark S&P 500 had finished slightly higher.
Perhaps the episode was a test to see how the market would react to the idea of replacing Powell before his term is up in May 2026. (It wasn't bullish in the very short term.) It also remains to be seen whether firing Powell would be deemed legal if it did happen.
But the broader point when it comes to White House-Fed relations (and what it could mean for the market) is that signs point to lower interest rates eventually...
Seeking "low-interest people"...
On Wednesday, Trump again argued that Powell is too late on cutting rates... that doing so would save the U.S. government more than a trillion dollars annually... and that "we have no inflation."
About the Fed chair position, he even said, "I'm only interested in low-interest people."
Trump said he would consider Kevin Hassett, the White House's National Economic Council director, for the job. Hassett has emerged as a leading candidate ahead of Treasury Secretary Scott Bessent, who Trump said is doing a "great job" in his current position.
The coming central-bank power shift might not happen until closer to May when Powell's term ends. But in the interim, the idea of "cheaper dollars" coming then – or sooner if a Powell Fed cuts rates later this year, as the market expects – could provide a large bullish tailwind for stocks.
Along the way, though, uncertainty about when a change in Fed chair will happen, or who will replace Powell, could shake things up. We saw an example of that on Wednesday, if only briefly.
The Recent Inflation Data Was a Mixed Bag
As for the claim of "no inflation"...
According to Wednesday's government inflation report, Trump was right – sort of.
The June producer price index, which measures prices paid by businesses, was unchanged from the month prior... but was still up 2.3% year over year.
June consumer price index data came in at or slightly above Wall Street expectations. This benchmark measure of prices rose by 0.3% last month and 2.7% year over year.
That's not "no inflation" – even in the official government data.
But for this month at least, the inflation picture was mixed – with spotty price increases in some areas that can be chalked up to tariffs, but also little price movement and even disinflation in other areas (like airlines and hotels).
Rare Earths Stocks Get a Boost
Meanwhile, the good news keeps pouring in for MP Materials (MP)...
In the July 10 Digest, we briefly covered the U.S. government's new investment in American rare earths miner MP Materials...
The partnership will provide MP Materials with the funding to open a second magnet plant in the U.S. In return, the government gets a 15% stake in the company, and (hopefully) a steady stream of rare earth elements ("REEs").
And on Tuesday, the company announced a $500 million, long-term agreement with consumer-electronics giant Apple (AAPL).
Starting in 2027, MP Materials will supply Apple with rare earth magnets from its facility in Fort Worth, Texas. Eventually, MP Materials said that it will "ramp up [production] to support hundreds of millions of Apple devices."
That's great for MP Materials. Apple shipped more than 228 million iPhones in 2024 alone. And investors are clearly excited – the stock has doubled since July 9 on these two announcements.
The headlines have pulled all rare earth stocks higher, with the VanEck Rare Earth and Strategic Metals Fund (REMX) up around 17% since July 9.
It's a win for Apple, too...
Trump has had Apple in his crosshairs for months. He has even threatened the company with a 25% tariff if it doesn't bring iPhone manufacturing to the U.S.
Even though Apple has been moving manufacturing to places like India, it still manufactures about 90% of its iPhones in China.
This deal with MP Materials could ease some of the tariff tension. It also lowers Apple's reliance on China, which is the world's dominant player in rare earths.
As recently as 2023, China accounted for more than 60% of rare earth production and about 90% of processing. That concentration can be a problem for the rest of the world – especially when geopolitical tensions are as high as they are today.
During the escalation of the U.S.-China trade dispute earlier this year, China suspended exports of seven of the 17 rare earth metals.
That export ban only lasted a few months, with China approving exports as part of a framework deal with the White House. But Apple is not taking chances, and for good reason.
Back in 2010, China banned rare earth exports to Japan for two months. Some Japanese manufacturing companies nearly ran out of supplies, according to the New York Times. They now hold more than a year's worth of inventory to prevent that issue again.
So, companies like MP Materials are extremely important to cut down on China's large share of the rare earths industry, especially in a new world of trade where the cost of importing has become substantially higher for U.S. businesses.
Good investing,
Corey McLaughlin and Nick Koziol
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