With the Federal Reserve signaling a likely rate cut at its September 18 meeting, investors are adjusting their strategies in anticipation of a changing market environment.
Oppenheimer analysts noted that Fed Chair Jerome Powell's recent remarks at the Kansas City Fed's Jackson Hole Economic Symposium strongly hinted at a forthcoming rate cut, which they feel will most likely be 25 basis points.
Oppenheimer points out that this anticipated policy shift is largely influenced by a recent downward revision of cumulative payroll gains, which reduced job numbers by 818,000 over the past year.
This adjustment, alongside ongoing economic resilience, seems to have "added to the confidence the Fed has been looking for to pivot policy even as economic resilience remains evident," said Oppenheimer.
They note that the market reaction to Powell's comments was immediate, with stocks rising and bond yields falling, which Oppenheimer had expected.
They see this as reinforcing a broadening of the stock market rally that began last October. The rally, which had been concentrated in a few sectors, is now likely to extend to those that have lagged, offering a more balanced growth across the market, according to Oppenheimer.
The firm remains optimistic about the technology sector's leadership but expects other sectors to benefit as well, particularly those investing in tech-related services and infrastructure to enhance business efficiencies. This broader participation is seen as critical for sustaining the market's upward trajectory.
"We expect information technology to remain among the sectors that can lead the market higher while sharing and giving other sectors room to participate and lead in the process," they wrote.
Looking ahead, Oppenheimer remains overweight on cyclical sectors compared to defensive ones and advocates for diversification across growth and value styles as well as market capitalizations.
The analysts suggest that small-cap and mid-cap stocks, which have shown intermittent rallies, may also see renewed interest as the market adjusts to the Fed's new stance.