Investors are moving to defensive corners of the market (^DJI, ^IXIC, ^GSPC) on Thursday as fresh data sparked some concerns of too much weakness in the labor market. SoFi head of investment strategy Liz Young Thomas joins Morning Brief to discuss the market’s reaction to the data and how investors can best position their portfolios as the Federal Reserve begins its rate-easing cycle.
Thomas notes that "equities are still cheering for the beginning of this rate-cutting cycle" as the Fed eyes a soft landing. She explains that easing rates will likely benefit cyclical areas of the market, like small caps (^RUT), financials (XLF), real estate (XLRE), and industrials (XLI). However, she warns that "it would be premature to assume that we have secured a soft landing."
Investors should still have some exposure to areas of the market that benefit from a steepening yield curve. Thomas points to gold (GC=F) as a good option as the global currency is experiencing volatility.
As all eyes are on Friday’s August jobs report, Thomas believes that if the data comes in cooler than expected, the market will react negatively and will likely experience a sell-off of mega-cap names. She adds that utilities are "not just a purely defensive play" at this stage, as they are a beneficiary of the AI trade. In addition, she explains that consumer staples (XLP) — another traditional defensive play — are overbought currently. If economic data continues to cool during the Fed’s cutting cycle, she expects financials and real estate to continue to slow.
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