Jerome Powell’s dovish pivot has unleashed a violent rotation across equities, commodities and crypto. Here is what matters for your portfolio and the exact levels to watch.
- Speed1
- Subtitles
- Quality
- Normal (1x)
- 1.25x
- 1.5x
- 2x
- 0.5x
- 0.25x
- Copy video url at current time
- Exit Fullscreen (f)
Friday’s session delivered the clearest evidence yet that the Federal Reserve is preparing to cut rates in September. Chair Powell’s Jackson Hole remarks shifted the emphasis from stubborn inflation to a softening labour market, sending the probability of a 25 bp reduction to 77 % in the CME’s FedWatch tool. Markets responded with textbook risk-on behaviour: the Russell 2000 surged 3.9 %, oil services broke out, and Ethereum ripped 15 % in a single candle.
The move is not without risk. Goldman Sachs reminds us that tariff pass-through accelerates in October, Walmart is already flagging higher fruit and vegetable prices, and bankruptcy filings are rising in consumer-discretionary and industrial names. In short, the Fed may be easing into the early stages of stagflation.
Key take-aways from Powell’s speech
- “Risks to employment are to the downside” – the clearest signal yet that the 2 % inflation target is no longer the sole priority.
- “Adjusting our policy stance” – opens the door to multiple cuts, not just a one-off insurance move.
- Market pricing now implies a terminal rate well below current levels, fuelling a broadening rally beyond mega-cap tech.
What history says about cuts at all-time highs
Ryan Detrick’s data show that when the Fed cuts with the S&P 500 near record levels, the index is:
- 50/50 one month later,
- higher 77 % of the time after two months,
- and positive 100 % of the time twelve months later.
The catch: the first 30 days can be choppy, especially in a post-election year and the third year of a bull market.
Sectors in focus
Russell 2000 (RTY) – 40 % of constituents are loss-making; lower borrowing costs directly lift valuation multiples. A weekly close above 2,430 targets the all-time high.
Energy – Hedge funds hold the smallest net-long oil position in 17 years. If stagflation narratives build, crude could catch a violent bid.
Semiconductors – Nvidia reports Wednesday post-close. The options market implies a 7–8 % swing. A break above $185 opens $200; failure to hold $170 risks a swift gap lower.
Crypto: the stagflation hedge trade
Bitcoin held the $112k test and has broken a short-term downtrend. Ethereum’s 15 % single-day gain suggests the shallow pullback to $3,600 may be all we get before year-end. Both assets stand to benefit if real yields fall and the US dollar softens further.
Putting it into practice
- Equities – Use any September dip to add equal-weight exposure via IWM (Russell 2000 ETF) or ASX:IJH for local accounts. Keep a trailing stop 3 % under the 20-day moving average.
- Energy – Consider a tactical long in XLE (Energy Select Sector SPDR) or ASX:WPL on a weekly close above $92 / $34 respectively.
- Precious metals – Gold above $2,450 (XAUUSD) confirms the next leg; silver needs $30.50 for momentum. Stagflation hedges: 5–10 % portfolio allocation via ASX:GOLD or Perth Mint unallocated.
- Crypto – Bitcoin above $116k reinstates the bullish bias; Ethereum above $3,900 targets $4,400. Size positions small—volatility will remain elevated through the US election.
- Risk management – Maintain 15 % cash into October. September is statistically the weakest month; a “buy-the-rumour, sell-the-fact” reaction to the Fed is plausible.
The next three months will decide whether this rotation broadens into a durable bull market or rolls over into recession. Watch the structure: S&P 500 must hold 6,200 on any pullback, and the equal-weight index needs to keep making higher highs. If both conditions hold, the 12-month statistics favour further upside.