Commentary
Last week, slight declines were observed in global equity markets. In the US, small caps and value continued to outperform, with the year-to-date performance of Russell 2000 now almost matching returns of large cap benchmarks. In terms of sectors, defensives posted positive performance, while most cyclical sectors lost the ground. Meanwhile, yields continue to decline in fixed income markets. Declines were evident in both the US and European markets and across all major fixed income market segments.
As inflation keeps declining, markets expect Fed to deliver the first rate cut on September meeting, while making do change this week. While the traditional inflation measure, core US CPI, has declined from 3.9% to 3.3% in 2024, core PCE (Fed’s preferred measure) has declined from 2.9% to 2.6%, getting closer to the target 2.0% level. Overall, inflation progress has primarily helped the US small caps and value stocks. On the other hand, yields have fallen as a result.
