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Last week, financial markets broadly advanced, supported by growing expectations of a Fed rate cut at its upcoming meeting. The ADP survey showed a loss of 32,000 private-sector jobs, reinforcing the view that monetary policy may become more accommodative. The Core PCE, released today, came in line with expectations, leaving market sentiment unchanged. As a result, Wall Street is trading near all-time highs, and risk appetite could remain strong, supporting the prospect of a traditional year-end rally.

Current economic environment

Monetary Policy:

• The Fed is expected to cut rates by 25 basis points, with a probability estimated at 87%, at its meeting next Wednesday.
• Jerome Powell’s speech will be crucial, especially after his last appearance, which was interpreted as more hawkish than dovish.
• Inflation and Economic Indicators:
  • The Core PCE rose 0.2% month-on-month, in line with expectations, confirming moderate inflation.
  • Long-term yields remained stable, with the 10-year U.S. Treasury trading in a horizontal consolidation channel between 3.95% and 4.17%.
• Equity Markets:
  • Stock indices remain resilient despite high valuations, supported by corporate earnings growth expectations and the prospect of a more accommodative monetary environment.
  • Risk appetite remains intact, favoring positive performance into year-end.

Investment recommendation

Why Invest in equities today:

1. Short-term upside potential: Expectations of a Fed rate cut support markets and equity performance.
2. Index resilience: Stocks are holding up despite elevated valuations, driven by expected earnings growth.
3. Year-end rally: Historically, year-end is favorable for equities, reinforcing the opportunity for tactical long positions.
4. Diversification and prudent strategy: In an accommodative macro environment, combining growth and defensive sectors can help limit risk.

⚠️ Risks to Consider

• Volatility could increase following Jerome Powell’s speech if the tone surprises the market.
• High stock valuations may limit upside potential in case of disappointing news.
• Bond markets remain sensitive to economic data and shifts in inflation expectations.

Recommended Position: Accumulate / Hold equities tactically, targeting cyclical and defensive sectors to benefit from the accommodative monetary context and potential year-end rally.