The U.S. inflation report was slightly better than expected with a CPI YOY growth of 3% for the month of June vs 3.1% for the consensus. However, the surprise came through the market reaction: NVDA (-6%) and the tech sector fell and cyclical companies rose, as you can see in the chart below. Real Estate, due to its sensitivity to interest rates was the best performer, since the market adjusted the odds of a rate cut to 91% in September. Has the rotation to cyclicals started? Is the market concentration into the Magnificent seven giving pass to a broader participation? Is that transition going to be smooth, or do we need a correction? Is the Fed going to have a leap of faith that inflation will indeed reach 2% by the end of the year and will start cutting in anticipation of an economic slowdown? These questions should have an answer by the end of the month when the FOMC meets.
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