Equities Rebound, But With Broader Participation

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Markets reversed course and rallied last week.  This week, the release of the August inflation numbers revealed that both Consumer Prices and Producer Prices declined on a year-over-year basis and are well below the historical average - indicating the Fed could have afforded to cut rates months ago.  One other thing to note, the gap between Producer Prices and Consumer Prices has widened again over the past few months and indicates that not all savings are being passed along to the consumer.  This is typically not sustainable and may force consumers to make more careful spending decisions going forward.  Just one month ago, the probabilities of a 50 bps rate cut or a 25 bps rate cut were about even.  Since then, the market moved more toward a 25 bps rate cut and now we're at almost a 50:50 probability again.

Global equities saw the largest monthly outflows last month since the first month of the year and the largest monthly outflows in the last 3 years.  There's a case to be made that now might be the time to diversify into other asset classes if investors are concentrated in tech names or high growth/momentum.  Look for more turbulent trading in equities this week as the market is clearly undecided on either a 25 or 50 bps rate cut and any perceived surprise by the Fed could affect this week's returns.

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