Winners from “Higher for Longer” Reality

Financials (XLF):

• • Net interest margin benefits from slower rate cutting cycle

  • Credit quality concerns offset by higher yields longer

  • Banking sector particularly benefits from steeper yield curve

Commodities/Energy:

• • Inflation persistence supports commodity pricing power

  • Energy companies benefit from cost-push inflation environment

  • Materials sector gains from supply chain inflation

Real Assets/TIPS:

• • Inflation-protected securities become more valuable

  • Real estate benefits from inflation pass-through ability

  • Infrastructure assets with inflation-linked revenue streams

Losers from Inflation Reacceleration

Long-Duration Bonds (TLT):

• • Duration risk increases as rate cuts become shallower

  • Real yields remain elevated with persistent inflation

  • Treasury market faces continued selling pressure

High-Multiple Growth Stocks:

• • Discount rate pressure from slower rate cuts

  • Margin compression from persistent cost inflation

  • Valuation multiples face gravitational pull from higher real rates

Consumer Discretionary:

• • Purchasing power erosion from inflation outpacing wages

  • Margin pressure as companies struggle to pass through costs

  • Trade-down behavior as consumers prioritize essentials

The Fed’s September 17 Communications Challenge

Powell’s Press Conference Becomes Critical:

Must Explain:

• • Why cutting rates with 3.1% core inflation is appropriate

  • How PPI decline relates to CPI acceleration

  • What inflation level would trigger policy pause

Forward Guidance:

• • “Data dependent” takes on new meaning with conflicting indicators

  • Dot plot likely shows shallower cutting cycle than previously expected

  • 2025 outlook becomes much more uncertain

Market Positioning for Next Week

Pre-Fed Meeting (September 12-16)

Tactical Trades:

• • Long financials on steeper curve expectations

  • Short duration bonds on reduced cutting expectations

  • Long energy/materials on inflation persistence

Avoid:

• • Rate-sensitive REITs facing higher-for-longer reality

  • Utilities losing bond proxy appeal

  • High-dividend stocks with duration characteristics

Post-Fed (September 18+)

Scenario Planning:

If 25bp Cut + Hawkish Guidance:

• • Financials rally continues

  • Growth stocks face continued pressure

  • Dollar strength on relatively hawkish Fed

If 25bp Cut + Dovish Messaging:

• • Market confusion on mixed signals

  • Volatility spike as conflicting narratives emerge

  • Gold strength on currency debasement fears

The Bigger Picture: Regime Change Confirmed

This CPI report confirms we’re entering a new monetary regime:

Old Paradigm (2010-2021): Disinflationary environment with predictable easing
New Paradigm (2025+): Persistent inflation with constrained monetary policy

Investment Strategy Must Adapt:

• • Inflation hedges become permanent portfolio allocation

  • Real assets gain structural importance

  • Duration risk becomes more dangerous than equity risk

  • International diversification critical as dollar policies become inflationary

Bottom Line: The Fed’s Impossible Position

Today’s CPI reading places the Fed in an unprecedented situation:

• • Must cut rates due to labor market deterioration (911K jobs revision)

  • Should pause cutting due to inflation reacceleration (0.4% monthly CPI)

  • Cannot satisfy both mandates simultaneously

For investors: This is exactly the kind of policy uncertainty that creates market volatility and favors nimble tactical positioning over buy-and-hold strategies.

The era of “don’t fight the Fed“ is ending. The new era of “the Fed can’t win“ is beginning.

Next week’s decision will be 25bp and done for a while – not the start of an aggressive easing cycle markets were hoping for. Position accordingly. 📊⚡🎯