Key Events: The Fed cuts rates – for the last time?
The Federal Reserve delivered its third rate cut of the year, as expected. But don’t expect a flurry of cuts ahead; their latest projections show stronger economic growth, inflation still above target, and only a slight dip in unemployment. In short, the bar for more easing is now much higher.
Market Review: Continued broadening
Stocks generally moved higher, but a sharp 2.3% drop in technology pulled U.S. large caps slightly negative. Bonds also lost ground as hopes for additional rate cuts faded. Two interesting numbers tell a story worth thinking hearing:
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- Silver has run from $30 to $62 this year and is higher than a barrel of oil for the first time since 1980.
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- Nvidia’s market cap is now larger than the market cap of the S&P 500 energy sector.
Outlook: Power needs and portfolio allocations
These data points bear important relevance to each other. Energy prices are exceedingly low relative to most other assets while Nvidia is larger than the energy sector as AI data center demand drives growth. Producing and delivering the energy to power those data centers, however, is generally considered to be one of the biggest roadblocks to faster rollout AI.1
A look at the two charts below illustrates the point: Sector extremes: The first chart shows the historical market cap of the technology (larger than ever) and energy (smaller than ever) sectors.
Potential Catalyst: The second chart suggests AI may reverse the trend of lower consumption.
A diversified portfolio construction is the starting point for success; our Navigator process also helps us position for economic reality. Our stock and bond portfolios have exposure to various energy themes, and we are not dependent solely on the technology sector for equity returns in coming years. We encourage investors to maintain discipline and diversification as they allocate portfolios.
Energy and Technology – shifting weights
This material is intended to be educational in nature , and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. OneAscent can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
Source: Rand https://www.rand.org/pubs/research_reports/RRA3572-1.html
Market Returns reference the following indices: Large Cap – S&P 500, Mid Cap Growth – Russell Midcap growth, Mid Cap Value – Russell Midcap Value, Small Cap – Russell 2000, Developed – MSCI EAFE, Emerging – MSCI Emerging Markets, Aggregate – Bloomberg US Aggregate, High Yield – Bloomberg High Yield
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