The markets were closely watching Friday’s Jackson Hole gathering to see what Powell was going to signal for the Fed’s September meeting. When he said that “the shifting balance of risks may warrant adjusting our policy stance”, the markets took off. They were waiting to get confirmation of a September cut and they effectively got it.
With that indication was a shift in market leadership. Small-caps were unquestionably the big winner on Friday, but the four primary cyclical sectors - industrials, financials, energy and materials - all beat the S&P 500. For the week as a whole, large-cap gains were minimal, but small-caps, cyclicals, value and even dividend stocks were sharp outperformers. The markets clearly viewed the Powell pivot as a signal for an improved economic outlook and sensitive areas of the market were clear to respond.
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