The S&P 500 bounced back from a feeble close on Thursday, and there were subtle hints (shared with clients) as to why interest-rate-sensitive plays (outside the Russell 2000) would outperform the gigantic caps on Friday – the entire week was expected to be mighty. No wonder – interest rates were not protesting, and confidence in a supple landing was growing. All at the expense of the dollar – and the precious metals rally, which I also called for to continue, as this related to premium analysis speaks first to a pullback below $2500.
Powell did not disappoint the doves – although I personally wonder why there is such a degree of surprise, since it is time to do a victory lap around the progress of disinflation and the latest revision of the strength of the labor market, making it easier to focus on the dual mandate (recognition of no longer tight but tight job creation). Here comes the promise of a September rate cut along the lines of “it is time to adjust the monetary policy stance” – with 100bp cuts in 2024 as the base case, which means only 75bp by November. Let’s leave aside what else the BoJ might do in the coming months…
Which assets have benefited the most from this daily relief environment? Small caps, regional banks, industrial names and so many precious metals properties. Oil still deserves a second look. More thoughts on the longevity of this rally-facilitating macro environment are discussed below – including my year-end forecast and path for the S&P 500.
