The Federal Reserve’s two-day policy meeting this week has prompted Wall Street’s chattering class to shift into overdrive. I decided to seek clarity from one of the sharpest guys I know: my friend and colleague Dr. Joe Duarte.

Dr. Duarte is chief investment strategist of our premium trading service, Profit Catalyst Alert. He’s a former registered investment advisor and author of the bestselling Options Trading for Dummies, and several other books including Market Timing for Dummies and Successful Biotech Investing.

Dr. Duarte (pictured) also is a medical physician and a jazz guitarist. Let’s step back from the market’s noise and obtain the good doctor’s investment prognosis. My questions to him are in bold.

Joe, you’re a renaissance man: musician, doctor, and investment expert. We’re both fans of the legendary jazz guitarist Pat Metheny, but financial advice really isn’t Metheny’s bag. So let’s turn to another source of mutual admiration: the late, great financial analyst Martin Zweig. What would Zweig say about current market conditions?

Martin Zweig (RIP) is one of my heroes, so I want to be careful when I answer this question out of respect. That said, his two rules about the market were straight forward:

• Don’t fight the Federal Reserve, and
• Don’t fight the market’s momentum.

I can see Zweig saying that somewhere right now with a worried look on his face. And he’d be right.

The central tenet of the global economy is liquidity, and the Fed controls the money spigot. Liquidity, in the context of markets, is the amount of money that is available in the financial system to purchase assets once all other expenses are covered. In our neck of the woods, these assets are stocks. When there is enough money in the banking system after Wall Street and related entities pay their bills, liquidity is considered sufficiently adequate to buy stocks.

The stock market rally won’t be on firm ground until the Fed stops siphoning liquidity from the markets.

The Federal Reserve announced Wednesday that it would stand pat on interest rates, for now. Looking ahead, what do you expect the Fed to decide at its final two meetings in 2023?

The Fed on Wednesday paused its rate tightening cycle, but the central bank also suggested that at least another hike is coming this year, a prospect that caused stocks to slump that day.

I have no idea as to what the Fed might do, other than what it always does, which is to do the wrong thing at the wrong time and push it too far when it comes to making the turn required by market and economic conditions. All we can do is plan accordingly and react.

The Fed is important. But what’s most important to investors is how the market reacts to the Fed’s monetary policy moves. Moreover, it’s equally important to put the market’s response in the context of the biggest macroeconomic trend that’s currently unfolding, which is deglobalization.

Corporate leaders are increasingly extracting their manufacturing facilities and other operations from China, which has become a politically risky location, and moving to countries such as Vietnam, Indonesia, Bangladesh, Eastern Europe, Latin America…even the U.S.

This reversal of globalization is causing money to move out of China, and it’s fueling inflation. If deglobalization continues to accelerate, corporate growth rates will be lower while inflation will be higher as goods and labor become less optimized and long-standing supply chains get disrupted.

Despite warnings from the America-is-in-decline school of thought, the U.S. dollar isn’t in danger of getting dethroned anytime soon, correct?

That’s correct. You can appreciate big trends in international money flows by looking at the U.S. Dollar Index (USD). Despite its recent pullback, the dollar remains in a well-established long-term uptrend against most currencies.

WATCH THIS VIDEO: Never Bet Against America

This is a sign that money that used to be active around the world, especially in China, is now active in the U.S. The higher U.S. interest rates rise or remain at elevated levels, especially when the U.S. economy remains more robust than others in the world, the more attractive the U.S. dollar will be for investors.

Do you expect the Fed to start cutting rates in 2024, and if so, roughly when?

I think the Fed will cut rates when it’s clear that the economy is in deep trouble. Keep in mind, rising rates exert a lagging effect on the economy, so we still haven’t witnessed the full magnitude of economic deceleration from the tightening cycle.

Rate cuts may come sooner rather than later, but currently the timing is an unknown. What’s more important is how the market responds.

If stocks jump higher and bond yields fall in response to a decrease in rates (whenever it happens), it would mean the market agrees. On the other hand, if bearish trends persist, it would suggest the market didn’t think the Fed did enough.

How are the stock and bond markets likely to react when the Fed finally pivots on rates?

As I said above, it’s a tough call, which depends on where the markets and the economy are at the moment and how the Fed responds.

Much of the market’s response will be based on how far behind the curve traders think the Fed is when they finally lower rates. The Fed almost never gets the timing right.

You’re a contrarian investor, which is the smart way to be. The big buzz in recent months has been around artificial intelligence (AI). Do you think the AI segment has become oversold?

I think that AI’s troubles are likely to last for a while. As I’ve written in several Stock to Watch articles, the recent AI rally was based on good Wall Street marketing. AI has been around for a long time and isn’t going anywhere. But the recent rally was overdone, and cooler heads are prevailing.

The losing trades of the moment involve those sectors where Wall Street’s marketing machine has been most active in the last few months, especially AI.

A perfect example is the Global X Robotics & Artificial Intelligence ETF (BOTZ), which is testing the long-term support of its 200-day moving average after rolling over in July.

You’re an avid technical trader. What are key technical indicators telling you?

Notably, the U.S. Ten Year Note yield (TNX) has crossed above its multi-year high of 4.37%. If that isn’t reversed soon it will cause problems for the stock market, especially interest rate sensitive sectors such as homebuilders. However, if this trend reverses and yields fall back below 4.30%, stocks will likely breathe a sigh of relief.

The indicators also are leading me to compile a compelling shopping list of stocks for my publication, Profit Catalyst Alert.

Final question: Your favorite adult beverage is the gimlet. What’s your secret to making this concoction?

This is probably the best question of them all.

• Fill your glass with ice cubes;
• Add your favorite vodka until the glass is half to three-quarters full;
• Top off with Rose’s lime juice; and
• Sit back, relax, and let the market do what it’s going to do as you prepare your shopping list.

Postscript: Well, after today’s market action, we could all use a stiff drink. On Thursday, after I had finished speaking with Dr. Duarte, the 10-year Treasury yield spiked past 4.48% and the main U.S. stock market indices closed sharply lower as follows:

• DJIA: -1.08%
• S&P 500: -1.64%
• NASDAQ: -1.82%
• Russell 2000: -1.56%

Investors are dreading further rate hikes. Exacerbating Wall Street’s anxiety is the increasing likelihood that the feuding GOP House leadership won’t be able to pass a federal budget that averts a government shutdown. Talks broke down again Thursday, with the deadline only nine days away.

Volatility got you nervous? You should know that Dr. Duarte has unearthed a tiny, under-the-radar company that has developed a revolutionary “black box” technology. This game-changing opportunity is poised to generate market-thumping gains, regardless of Federal Reserve policy or the market’s ups and downs. Click here for details.

John Persinos is the editorial director of Investing Daily.

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