Fed Policy & Market Expectations - The market anticipates a hawkish Fed cut, with uncertainty about future cuts possibly extending until June [2] - A dovish cut, indicated by projections showing more rate cuts next year, would be bullish for the market [3] - Markets have adjusted to the idea that the Fed is institutionally slightly hawkish, potentially due to external pressure to protect its integrity [7] - The market is bracing for the December meeting, which is why a surprise is possible [8] Quantitative Easing (QE) & Tightening (QT) - The Fed eased primarily using its balance sheet but tightened by draining reserves from the system, causing plumbing issues [11] - Buying Treasury notes and mortgage-backed securities lowers long-term rates, influencing equity prices and risky assets, and suppresses volatility [12] Potential Risks & Opportunities - Acknowledging the balance of risks shifting could signal underlying economic fragility [4] - Ending QT is essentially QE [4]

Market Outlook & Strategy - Barclays maintains a contrarian view, anticipating the Fed will not cut rates in September [1] - A hawkish tone from Jackson Hole could negatively impact small caps (especially value segment), home builders, parts of retail, and financials [2][3] - Caution is advised in small caps, requiring selectivity at the index level [4] - Financials are viewed positively due to strong earnings, good revisions, and potential benefits from increased corporate and capital markets activity [4] - Big tech is considered a safer space with high earnings quality and growth, especially if valuations pull back; previously trading around 29 times forward earnings, now approximately 28 times [5][6] - Broadening of market gains beyond big tech is uncertain, as results outside of financials and big tech are mixed [7][8] Earnings Analysis - Aggregate Q2 earnings look strong with over 10% growth and sales growth close to 6%, indicating positive operating leverage [9] - However, positive results are concentrated in financials and big tech; most other sectors are struggling with negative operating leverage [9] - The full impact of tariffs is yet to be seen, potentially affecting future earnings [9]