At the Fed meeting in Jackson Hole on August 22nd, Jerome Powell’s dovish leaning remarks signaled that the balance of economic risk “may warrant” a policy stance adjustment. After these remarks, the markets soared and immediately raised the odds on a 25 basis point cut in federal funds on September 17th. Markets are currently pricing in an 85% probability of a September rate cut and 54 bp of easing this year.
There is still plenty of scrutiny surrounding this dovish tilt amid lingering tariff-driven inflation concerns, labor market softening, rate-cut uncertainty and political pressure. The potential tailwinds for the market driven by the Fed easing expectations are countered somewhat by the overhang at the index level, given the growth this year has been concentrated in a few names.
AI is still the biggest thematic tailwind for market sentiment, though more recent focus has been on the capex bubble, competition and monetization concerns. Trade has moved somewhat to the back burner over the last month or so after a flurry of deal announcements, but tariff headline risk is not going away. There has also been discussion about how retailers are expecting to start seeing more cost pressure from tariffs and how much of higher prices companies are going to pass on to the consumer.
Amid all this uncertainty, we continue to remain cautious especially considering the high valuations of the current markets and the fact that September is historically the worst month for the markets on an annual basis. As always, please feel free to contact any of our team if you have any questions.
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any action. The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
Source: Fact Set
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Nothing particularly incremental from a narrative perspective in the wake of the more dovish leaning remarks from Fed Chair Powell on Friday. However, still plenty of scrutiny surrounding this dovish tilt amid lingering tariff-driven inflation concerns, labor market softening, rate-cut timing uncertainty and political pressure. Market currently pricing in a ~85% probability of a September rate cut and 54 bp of easing this year. Rotations driven by Fed easing expectations a positive from a breadth perspective though also a potential overhang at the index level given concentration dynamics. Ahead of Nvidia earnings this week, AI still the biggest thematic tailwind for market sentiment, though more recent focus has been on capex bubble, competition and monetization concerns. While trade has moved somewhat to the back burner over the last month or so following a flurry of “deal” announcements, tariff headline risk not going away with Trump disclosing investigation into furniture (which came roughly a week after a 400+ product/$210B+ expansion of steel and aluminum tariffs). Also further discussion about how retailers expected to start seeing more cost pressure from tariffs and pass along higher prices to consumers. Positive corporate guidance and earnings revision trends, elevated buybacks, seasonal headwinds, elevated tech positioning, hawkish BoJ, China policy support, China stock market breakout, big M&A, private equity fundraising slowdown and biggest decline in government employment since WWII among some of the topics recently discussed by the Street and/or in the financial press.