Fed Fallout + Portfolio Updates

Spot on.

In yesterday's note we presented the case for what would occur at the FOMC's most important meeting in over a year.

We highlighted how credit markets saw about a 2/3 chance of a 50bps cut, while 105 out of 114 "top economists", not sure what they were thinking, predicted a 25bps cut.

A historic divide in opinions, but we said...

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"We expect a 50bps cut, for better or worse."

We guessed right.

Our thesis surrounding the fact that the Fed wants to ease the perception that they are always behind the ball and thus leading them to go with an aggressive first cut turned out to be right on point.

Fed chair Jerome Powell then took to podium in a speech that we would classify slightly hawkish, simply due to his excessive discussion regarding strong consumer spending and overall resilient U.S. growth, showing that the Fed is still weary of a 1970s-like resurgence in inflation (they should be).

On the other hand we saw some dovish shades, especially when it came to the labor market in which Powell really emphasized the softening and clearly understands that restrictive rates had finally done their job in unwinding historic employment levels.

All in, the market took this mix bag of sentiments as a negative, selling off into close yesterday... just to boom higher today:

In our opinion this cut is bullish as taken by the market.

While some bears have floated the idea that an aggressive 50bps cut is indicative that the Fed believes the economy needs fast economic relief, we simply see it as them acknowledging that labor conditions are weakening and its important to get in front of them.

We expect broader markets to slow down in gains, especially tech, as uncertainty really starts to set in with regards to economic development.

However, select sectors and market players will begin to rally in sort of a rotation trade reminiscent of the torrid 2020-2021 small cap rally.

Going forward, we can look back at our note from yesterday:

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"Given our expectation for a 50bps cut, it's time to really go in on speculative names and those with large debt loads that will begin to finally feel interest relief."

Small caps, Consumer Cyclical and Energy sector names stand to benefit from this move, and that leads us to talking about our positioning, which contains three stellar stocks across these sectors and market divisions: