Early-Cycle Themes Emerging—Is It Time to Leg In?

Despite tariff uncertainty, a slowing consumer, and  continued inflation worries, equities posted positive returns in August amid a healthy Q2 earnings season and renewed hopes for interest rate cuts. The S&P 500 Index gained 2% for the month, reaching a new all-time high on August 28th. With the Federal Reserve hinting at near term monetary easing, equity performance broadened in the month. Small-caps (+7.1%) were among the best performers, followed by international developed equites (+4.6%) and US value (+3.4%). Bonds also fared well as 7-10 year US Treasuries gained 1.6%, Treasury Inflation Protected Notes rose 1.5%, and high yield credits were up 1.2%. Aside from crude oil (-6.0%), commodities posted positive returns as silver increased 8.6%, gold was up 5.0%, and broad-based commodities rose 2.0%.

Fed Chair Powell’s Jackson Hole Speech Leans More Dovish than Expected

At this year’s Jackson Hole symposium, the Federal Reserve acknowledged a shifting in the balance of risks. Chair Powell emphasized that “downside risks to employment are rising” and noted that with policy already restrictive, the outlook may warrant adjusting the Fed’s stance. Although inflation via July Core PCE (Personal Consumption Expenditures Index) printed 2.9% and increased from June’s 2.8% reading, GDP growth has slowed to 1.4% in the first half of the year and job gains have weakened sharply. Such data likely caused Powell to reiterate that it is a "reasonable base case" to assume tariff effects on prices will be short-lived. Markets interpreted his remarks as opening the door to rate cuts, sparking a rally in rate-sensitive stocks and bonds. As of August 31st, markets are pricing in an 86% chance for a 25 bps rate cut at the September FOMC Meeting.

Discretionary Spending Starts to Slow

Recent data show slowing year-over-year growth in consumer spending across tariff-impacted discretionary sectors such as autos, apparel, furniture, and sporting goods. This suggests emerging weakness in discretionary demand that could weigh on overall consumer activity.

Small-Caps Gain Ground on Large-Caps

Small-caps, as measured by the Russell 2000, have recently outperformed their large-cap counterparts in the Russell 1000 by the largest margin this year, driven in part by growing expectations of looser financial conditions ahead.

Time to Take Profits, or Will the Rally Continue?

Since the April 8th lows, which consists of only 17 trading sessions, the S&P 500 has rallied over 12.5%. Since 1988, there were 13 other instances resulting in a gain of 12.5% or more over the same number of sessions, and stocks rallied onward thereafter in most of these cases. Given looming policy uncertainty, is it time to take profits, or will stocks rally on?

Staying Resilient in Uncertain Markets

It’s tempting to get caught up in the latest headlines, but news changes on a dime, and that’s why we believe in sticking to a long-term investment plan. We're not leaning bullish, but we’re also not embracing a fully bearish stance either; we’re positioned with caution. While what has worked over the last few years likely won’t be what leads in the next, we feel it’s crucial to focus on diversification and liquidity. A well-balanced portfolio inclusive of international equities and alternative assets can also help navigate this new cycle. If a recession is indeed unfolding, bond prices are likely to rise as yields fall, offering a potential buffer.

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Warranties & Disclaimers

As of the time of this publication, Astoria Portfolio Advisors held positions in SPYG, SPY, SPYV, SPDW, SPMD, SPSM, SPEM, SPBO, SPAB, MUB, IEF, SPIP, GLD, SLV, USO, and BCI on behalf of its clients. There are no warranties implied.  Past performance is not indicative of future results. Information presented herein is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. The returns in this report are based on data from frequently used indices and ETFs. This information contained herein has been prepared by Astoria Portfolio Advisors LLC on the basis of publicly available information, internally developed data, and other third-party sources believed to be reliable. Astoria Portfolio Advisors LLC has not sought to independently verify information obtained from public and third-party sources and makes no representations or warranties as to the accuracy, completeness, or reliability of such information.  Astoria Portfolio Advisors LLC is a registered investment adviser located in New York. Astoria Portfolio Advisors LLC may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements.