Labor Revision and Powell Move Markets

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

Fed Chairman Powell essentially gave the green light for the first rate cut next month.  Tech stocks took a back seat to defensive sectors last week.  After data from April 2023 to March  2024 suggested that the labor market was strong, the BLS decided to revise the jobs added during that period lower by approximately 818,000.  In fact, it's the 2nd largest downward revision to payrolls since 2009.  Last Friday at the Jackson Hole Symposium, Fed Chairman Powell basically signaled the first rate cut in 4 years for next month when he stated, "The time has come for policy to adjust."  As such, the markets show a 63% probability of a 25 basis points rate cut next month.

Investors need to remember that it's about the long-game and not to get too focused on the short-term.  When we look at the history of Bull and Bear markets, clients should realize the upside is more powerful towards compounding returns than the downside is toward eliminating returns.  That being said, now that the Fed is ready to adjust policy, investors need to adjust portfolios with the change in interest rates.  Sectors that do well during falling interest rates are Defensive sectors and those that under-perform during falling rates are more Cyclical in nature.  The PCE Index (inflation) will be released this week, which could further guide the magnitude of the Fed's first rate cut.

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