LIVE MARKETS-Big bets on a September rate cut don't mean it'll actually happen

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BIG BETS ON A SEPTEMBER RATE CUT DON'T MEAN IT'LL ACTUALLY HAPPEN

While traders are mostly in agreement on bets that the Federal Reserve will cut interest rates in September, Scott Wren at the Wells Fargo Investment Institute (WFII), is taking a contrarian stance.

WFII's senior global market strategist notes that July's weaker-than-expected employment report "certainly caught the eyes of every voting member" at the Fed. Job growth in July was slower than economists had anticipated and the dramatic revisions to the June and May numbers took everybody by surprise.

But Wren says that July's 4.2% unemployment rate is well below the average rate of 5.9% going back to January 1961. He noted that the historical average includes both good and bad economic times as well as high and low inflation periods.

While Wren says he believes that the labor market will weaken further in coming months and quarters, he argues that it would be tough for many strategists to call the current labor market "weak" because of the low unemployment rate, which Chair Powell recently described as "at or close to full employment."

On Wednesday, the market is showing a 93.2% probability that the Fed would cut rates by a quarter percentage point in September, according to CME Group's FedWatch tool.

Wren says his firm has just one cut penciled in for the rest of 2025, and that "it would be hard for the Fed to cut in September if inflation is slowly moving higher and the unemployment rate is still low."

With uncertainty abounding around tariffs, higher inflation and a slowing economy, the strategist suggests that investors trim small caps and lighten up on fairly valued energy .SPNY and communication services .SPLRCL. He suggests putting those trimmings to work in financials .SPSY, which it sees as most favorable, followed by technology .SPLRCT and utilities .SPLRCU.

(Sinéad Carew)

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