From stock price fluctuations to concerns about deflation, the reactions to the Fed rate cut have been varied. But we still need to keep an eye on labor data, says Mike Wilson, our CIO and Chief US Equity Strategist.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the Fed’s 50 basis point rate cut last week, and the impact on markets.It's Tuesday, Sept 24th at 11:30am in New York.So let’s get after it. As discussed last week, I thought that the best short-term case for equities was that the Fed could deliver a 50 basis point cut without prompting growth concerns. Chair Powell was able to thread the needle in this respect, and equities ultimately responded favorably. However, I also believe the labor data will be the most important factor in terms of how equities trade over the next three to six months. On that score, the next round of data will be forthcoming at the end of next week. In my view, that data will need to surprise on the upside to keep equity valuations at their currently elevated level. More specifically, the unemployment rate will need to decline and the payrolls above 140,000 with no negative revisions to prior months.  Meanwhile, I am also watching several other variables closely to determine the trajectory of growth. Earnings revision breadth, the best proxy for company guidance, continues to trend sideways for the overall S&P 500 and negatively for the Russell 2000 small cap index. Due to seasonal patterns, this variable is likely to face negative headwinds over the next month.Second, the ISM Purchasing Managers Index has yet to reaccelerate after almost two years of languishing. And finally, the Conference Board Leading Economic Indicator and Employment Trends remain in downward trends; this is typical of a later cycle environment.Bottom line, the Fed's larger than expected rate cut can buy more time for high quality stocks to remain expensive and even help lower quality cyclical stocks to find some support. The labor and other data now need to improve in order to justify these conditions though, through year end.It's also important to point out that the August budget deficit came in nearly $90 billion above forecasts, bringing the year-to-date deficit above $1.8 trillion. We think this fiscal policy has been positive for growth but has resulted in a crowding out within the private economy and financial markets. Part of  the reason for the Fed to cut 50 basis points – rather than 25 last week – pertains to its obligation to help Treasury fund the government, in my view. Contrary to popular belief, the Fed and Treasury have an incentive to let inflation run hotter, not colder. There is nothing more problematic to heavy debt issuers than deflation.This is another reason why a recession is the worst-case scenario even though some argue a recession is better than high price levels or inflation for 80-90 per cent of Americans. A recession  will undoubtedly bring debt deflation concerns to light, and once those begin, they are hard to  reverse. The Fed understands this dynamic better than anyone as first illustrated in Ben Bernanke's famous speech in 2002 entitled “Deflation, Making Sure It Doesn’t Happen Here.” In that  speech, he highlighted the tools the Fed could use to avoid deflation including coordinated monetary and fiscal policy.As evidence, such coordinated policy has been happening for years, we note that gold continues to outperform most stocks including the high-quality S&P 500. Specifically, gold has rallied from just $300 at the time of Bernanke’s speech in 2002 to $2600 today. In a world in which the government decides to support the economy via seemingly unsustainably high fiscal spending, lower rates and unorthodox financing tools, the purchasing power of US dollars has fallen much more than what conventional measures of inflat