Hello everyone, and welcome back to our weekly positioning watch.

Markets have found their way back to pre-NFP levels as the storm seems to have calmed in equity markets. Meanwhile, fixed income markets are focused on four rate cuts, despite many taking the NFP revisions last week too seriously, likely underestimating the impact of immigration on payroll data.

The classical cutting cycle trades are starting to gain traction in the markets. There isn’t much happening after Powell’s Jackson Hole speech, which essentially confirmed the cutting cycle once and for all. The implicit message advising markets not to bet against the upcoming cuts has pushed traders toward empirically performing trades, such as utilities, gold, short-duration USTs, and, to some extent, SOFR flatteners—shorting the December 2024 contract while going long on the 2025 contract.

Equity positioning has yet to show signs of a slowdown after the early August bloodbath. There are almost no positioning indicators signaling that equity direction should turn downward anytime soon, unless the September NFP number continues to look recessionary—especially given the Fed’s dovish lean. However, we are beginning to observe some late-cycle dynamics within broader equity positioning. Real Estate, Utilities, and Financials have started to gain traction among markets, both among hedge funds and retail investors via ETF flows, while Energy and Industrials are becoming slightly less popular. This is typically seen at the end of cycles rather than the beginning.

The direction is although still upward for equities (for now).

Chart 1.a: Equities are starting to show late-cycle dynamics, but positioning remains bullish