August saw a broadening of equity market leadership as optimism around a potential September interest rate cut by the Federal Reserve helped fuel gains across most equity indexes. Inflation data painted a picture of gradual improvement albeit still above the Fed’s 2% target. The personal-consumption expenditures (PCE) price index rose 2.6% over the 12 months through July, unchanged from June, while the core PCE index—which excludes food and energy—edged higher to 2.9% year-over-year from 2.8% the prior month. The Federal Reserve has made it clear that while inflation has moderated from its peaks, sticky services inflation and an uncertain labor market remain key considerations. There was a material shift in messaging from the Fed during the Jackson Hole meeting in August where the Fed is balancing more the dual mandate of inflation and unemployment. This is a departure from most of the messaging post Covid that has been centered around the fight against inflation.
Looking ahead, we continue to believe that portfolio positioning should emphasize quality, particularly in large-cap companies with durable earnings and strong balance sheets, while also recognizing that an environment of easing inflation and potentially lower rates could provide a tailwind for the economy. On the fixed income side, we maintain our preference for credit risk over duration risk, as longer-term yields are likely to remain elevated until the Fed provides clearer direction on its policy path. With September’s jobs and inflation data poised to shape the Fed’s next move, we expect volatility to remain elevated, but we view the broadening of equity leadership in August as a constructive sign for markets in the months ahead.
Information in this commentary is gleaned from third-party sources, and while believed to be reliable, is not independently verified. This content is not intended to be tax, legal, investment, or fiduciary advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be suitable for all investors. Bernardo Wealth Planning recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. Past performance does not guarantee future results.