What We're Seeing: Longest Winning Streak of 2024 – 19 August 2024

The Week in Brief

US stocks rallied sharply last week, with the Nasdaq jumping 1.4% on Monday alone. This extended the longest winning streak of 2024 to eight weeks. The gains were broad: all 11 S&P sectors climbed, led by technology and cyclicals.

This was the largest weekly gain of the year for major indices, with markets up 3 to 5% in aggregate. Investors shook off the early-August jitters entirely, driven by optimism that cooling inflation and economic resilience will allow the Fed to begin cutting rates in September.

The Fed Pivot Trade

The rally was fundamentally about rate expectations. Markets are now pricing in a high probability of a September cut, with more to follow through year-end. The combination of softer inflation data and signs of labour market normalisation has convinced investors that the Fed has room to ease.

Treasury yields fell on the week, especially in Europe where growth concerns are more acute. The yield curve steepened slightly, a pattern consistent with expectations of lower policy rates ahead.

Sector and Asset Performance

NVIDIA and Microsoft led the tech advance, with AI-related names continuing their strong run. But this was not just a tech story. Cyclicals joined the party, with industrials and financials posting solid gains. The breadth of participation is a healthy sign.

Oil prices backed off slightly from recent highs, providing relief on the inflation front. Gold rose alongside risk assets, an unusual combination that suggests investors are hedging multiple scenarios.

Our Read

This feels like a regime shift. The market has moved from worrying about how long the Fed will stay restrictive to anticipating an easing cycle. This is bullish for both stocks and bonds, particularly for rate-sensitive sectors that have lagged.

We think the positioning makes sense. The economic data supports a gradual easing of policy, and the Fed has signaled it does not want to be behind the curve. A September cut looks likely, with the debate now centering on the pace and magnitude of subsequent moves.

For portfolios, we are maintaining overweight positions in equities. The breadth of the rally suggests staying invested and tilting toward areas that benefit from lower rates. Real estate and utilities, long-suffering under higher yields, may see renewed interest.

What Could Change Our View

The Jackson Hole symposium later this month is the next major event. If Fed Chair Powell delivers a more hawkish message than expected, the rate-cut euphoria could reverse quickly. We are also watching the labour market closely: any sign of renewed tightness would complicate the inflation picture. For now, the trend favours risk-taking.

This is informational commentary, not investment advice.