Inside Markets — Higher-for-Longer
Higher-for-Longer
October 10, 2024
Today’s data mostly supports the ‘higher-for-longer’ narrative as a hotter core CPI print has Fed officials adding qualifying remarks on the pace of rate cuts. While the Fed is increasingly focused on the growth side of its mandate, today’s spike in jobless claims was likely obscured by the effects of Hurricane Helene. Recall that a higher-for-longer rate backdrop would likely benefit mega caps, Tech and ‘quality’ stocks at the expense of defensive and cyclical groups. These higher-for-longer equity beneficiaries have been dormant for the last several months as markets priced for a more aggressive Fed easing cycle. Rate cuts in a non-recessionary environment should be supportive for equities in general but the path to cyclical outperformance requires a pick up in growth activity and continued disinflation. Today’s data doesn’t really address the growth side of the ledger, which has mostly been aligned with an economic soft landing. But as a reminder, a sell-side research analyst covering capital goods wisely subtitled an overnight report ‘A Soft Landing Is Not A Take Off.’ A ‘take off’ or cyclical recovery is a more compelling investment opportunity given 2+ years of cyclical and SMID cap underperformance, but there’s little sign of it taking hold immediately.
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