Barclays_Equity_Market_Review_Don_t_fight_the_Fed_don_t_short_Cyclicals

Equity Market ReviewOur weekly pack contains keycharts on performance valuationand technicalsBarclays Capital Inc. and/or one of its affiliates does and seeks to do business with companiescovered in its research reports. As a result, investors should be aware that the firm may have aconflict of interest that could affect the objectivity of this report. Investors should consider thisreport as only a single factor in making their investment decision.This research report has been prepared in whole or in part by equity research analysts basedoutside the US who are not registered/qualified as research analysts with FINRA.Please see analyst certifications and important disclosures beginning on page 7.Equity Market ReviewDon't fight the Fed, don't shortCyclicalsIt seems clear now that the Fed has shifted to growthpreservation mode. Time will tell, but with incoming dataholding up, a soft landing stays on track. The rebound in activitysurprises and positive year end seasonality may give legs to theshort squeeze in Cyclicals. Now focus turns to Sep PMIs andupcoming Q3 earnings.Weekly market commentaryDon't fight the Fed. Fed's surprise 50bp cut andaccompanying message seem clearly designed to pull outall the stops to achieve a soft landing. Risk assets' initialreaction has been positive, which along the bearsteepening of the yield curve, suggest markets are buying into this scenario - the Fed put is inplay. However, compared to the 'new dots' showing a slower pace of rate cuts going forward,with only two more 25bp cuts this year and four in 2025 (see September FOMC: A 50bp re-calibration, 19 Sep), the rates path reflected into current market pricing looks rather aggressiveto us. Incoming data will impact these expectations, and if it confirms the recent bounce in theUS, we doubt the Fed will cut as much as currently priced in. But for the time being, absent acatalyst to challenge the soft landing script, we believe the path of least resistance for equitiesand Cyclicals is to the upside. As we discussed in our report earlier this week (see What nextafter the first cut, 18 Sep), equities and Cyclicals typically rebounded steadily after the Fedstarted its rate cut cycle...as long as it was not followed by a recession.  Equity ResearchEquity Strategy20 September 2024COREEuropean Equity StrategyEmmanuel Cau, CFA+44 (0)20 3134 0475emmanuel.cau@barclays.comBarclays, UKMatthew Joyce, CFA+33 (0)1 4458 3341matthew.joyce@barclays.comBBI, ParisMagesh Kumar Chandrasekaran, CFA+44 (0)20 3134 5983magesh.kumarchandrasekaran@barclays.comBarclays, UKEmmanuel Makonga+44 (0)20 7773 2593emmanuel.makonga@barclays.comBarclays, UKArihanth Bohra Jain+91 (0)22 6175 1406arihanth.bohrajain@barclays.comBarclays, UKCompleted: 20-Sep-24, 04:20 GMT Released: 20-Sep-24, 04:25 GMTRestricted - ExternalFIGURE 1. Market pricing of cuts still very dovish compared to newFed dots and Barclays revised forecastsFIGURE 2. Cyclicals have tended to outperform in regimes of yieldcurve bear steepenin