Inside Markets

The yield curve steepening over the last few sessions has decoupled from levels implied by terminal Fed rate expectations.

Following last week’s 50 bp rate cut, the focus shift to growth/employment data.

With the Fed’s September policy decision now out of the way, we look for longer duration bond prices to spend time consolidating gains.

The Fed policy statement indicated that 50bp rate cut was motivated by improving inflation and evolving risks to employment and inflation.

The rotation into cyclical/value and small cap stocks started on Friday after former Fed officials and the WSJ’s Nick Timiraos discussed the rationale behind a potential 50bp September rate cut.

Fed anticipation is driving an ongoing rotation into the cyclical/value sector.

Yesterday’s strong Tech rally followed comments from NVDA CEO Jensen Huang who discussed a trend toward densification and data center acceleration at a sell-side industry conference.

We keep a cautious near-term bias into a rolling corporate buyback blackout window that starts Monday and into a seasonally difficult period that usually extends into mid-October.

ORCL’s earnings call may temporarily shift the AI narrative away from the recent ROI focus and back to large scale capex plans.

The yield curve steepening that’s occurred over the last two months has mostly been driven by lower short-end rates.