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Mixed day on Wall Street as investors brace for the big market event this week, Nvidia earnings, of course. But our next guest is also keeping an eye on two data points: jobless claims and PCE as the Fed gears up for its first rate cut. Joining us now is Jack Manley, JP Morgan Asset Management, Global Market Strategist. Jack, it's good to see him.

Great to see you, too.

So, you look at this market, Jack, and you say you see a market that seems to have found its footing. What do you mean by that, Jack?

Yeah, well, the headline, right, I think today about the Dow hitting an all-time high kind of tells you a lot of what I'm talking about. The volatility that we had seen in equity markets just a few weeks ago feels like very much now old history, right? It is on to bigger, brighter things. And there is a lot of data, I think, that we'll be digesting over the next week or so that will help to inform just how bright those prospects may be. And I'm reasonably optimistic about where we are.

And we also are getting a clearer picture of what the Fed wants to do. And you see 75 basis points worth of cuts this year with 50 basis points of that being front-loaded in September. So, how should investors be positioning themselves as we approach those cuts?

Yes. Well, I think the first thing we have to take into consideration, and Powell himself told us this at Jackson Hole last week, is that this is still very much a Federal Reserve that is data dependent. So, while 50 in September and 25, let's say, in December feel right right now, they might not feel right a week from now, right? And especially when we consider that we'll be getting August jobs data next Friday. That, I think, is going to help to further kind of crystallize this view on what exactly the Fed is going to be doing. But we've done a little bit of research internally. We've looked at how different parts of the market have done in response to that first rate cut, right? And what we have typically seen is that fixed income starts to make a whole lot more sense in portfolios, generally speaking higher quality stuff, and a lot of those returns front-loaded into, call it, the first six months, excuse me, after that first cut. So, more conversations, I would say, about fixed income investing broadly. I think we also have to have a conversation about a more holistic approach toward equity investing. And that's been emerging, I would say, over the last month or so. I think it is just getting stronger day by day. It's not the MAG 7 anymore. You are simply fishing in, I would say, a bigger pond. Falling interest rates, yes, Jackson Hole helped to confirm that. Cooling inflation, we saw that in CPI not too long ago. Easing wage growth. These things, to me, feel like almost the holy trinity of profitability. And when, for so long, the MAG 7's been the only game in town, hey, finally other players are showing up to the game. They are ready to compete. And so it's so many different things, right, when it comes to asset allocation, given the fact that the rates are moving lower and likely to do so in the absence of a recession.

Would those other players, Jack, include small caps?

That is a tricky question, and I get it a lot. And I feel like my job sometimes is you give me a dollar, and I tell you where to put that dollar: large or small, growth or value, US or foreign, right? I don't have the luxury of being able to split that dollar, being able to change it. Right now, even in the absence of a recession, we are very clearly seeing a slowing US economy. And in a slowing economy, you need quality when it comes to allocation. That's across stocks and bonds. And the unfortunate reality is that the large cap name is the high-quality name. The small cap companies are just having too many problems. They aren't profitable enough. The structure of their debt makes it so that every time the Fed has turned the screws, so to speak, they've gotten slapped around a little bit. And the only way, to my mind, and maybe this is an oversimplification, but the only way that small cap really shows up and outperforms beyond just a short-term valuation tailwind is if interest rates crater. And interest rates are cratering only if there's a recession. If there's a recession, small cap companies underperform. It kind of feels like a catch-22 almost. I don't see a world where small cap sustainably outperforms large cap even over a shorter period of time. So, long-winded way of answering your question, maybe it includes small caps. I'm not particularly optimistic.