Fed cutting cycle means market breadth narrative has legs, says SoFi's Liz Thomas

Core Viewpoint - The market is expected to reach record closing levels, prompting a need for investors to diversify their growth and momentum exposure [1][2]. Market Positioning - The current market environment suggests a broadening out trade, particularly in small-cap stocks, as the Federal Reserve is anticipated to begin a cutting cycle [2][3]. - The equal-weighted S&P is recommended for exposure to small caps, as large caps are expected to perform strongly during Fed cutting cycles [3]. Federal Reserve Outlook - The focus is on the Fed's upcoming meeting, with expectations of a 25 basis point cut rather than a larger 50 basis point cut [4][5]. - The labor market shows signs of cooling, with an unemployment rate of 4.3%, which is still below the Fed's projected rate of 4.5% for the end of the year [6][7]. Economic Indicators - There is a concern about potential weakness in corporate margins and earnings, but no immediate signs of a significant layoff cycle are present [6]. - The Fed's messaging is expected to indicate a gradual loosening of policy rather than cuts driven by economic weakness [9]. Investment Opportunities - Software companies are highlighted as potential investment opportunities, particularly those that facilitate AI integration, despite high valuations [10][11]. - The AI theme is viewed as a long-term investment opportunity, with significant potential beyond the semiconductor sector [12].