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Now, while the market is pricing in a near certain rate cut, inflation remains significantly above the central bank's 2% target. And there is a chance it could stay sticky in the months ahead. That further complicates the Fed's next move. Looking beyond September, what should investors keep in mind as they map out their portfolios? Here to discuss is Katie Kaminsky, Alpha Simplex Chief Research Strategist and portfolio manager. Katie, we had this week full of data. Now, the question becomes to just how much the Fed will cut, 25 or 50 basis points. What do you expect? And is there too much emphasis being put on the size of this first cut?

This is a great question because honestly, it's been going back and forth. I'd say two or three weeks ago, it was 50 basis points last week, then it was 25 earlier this week. And then now within the last day, there's been some interesting articles out in the Wall Street Journal where people are pointing to 50 for next week. So I'd say that the jury is still really out. And I do have to agree that 25 or 50, we're changing course. And when the Fed is changing course, expect a lot of things to change. And that's going to be both an opportunity and a challenge for investors.

So, let's talk about some of those opportunities and the trickle effect that we could see with these rate cuts. Are there certain sectors, areas of the market that would benefit from this new low rate environment that we're supposedly about to enter?

Definitely so. I mean, so let's think about it this way. When rates go down, this is more accommodative. And so you're going to see sectors which can better borrow, would be less constrained and borrowing, that will do a little bit better. You might see some shifting from tech a little bit more to real estate, consumer staples. And we've definitely started to see this since the summer. There's definitely opportunities for rotation across sectors. So it's really about saying who's going to benefit once things change, um, across different sectors.

Now, as we mentioned, we still have inflation above the Fed's 2% target, so there is a possibility that inflation could tick up again. So one, what are the signs that investors can look out to when it comes to whether or not we're going to see an uptick in inflation? And two, is there a way to play that in your portfolio?

Yes, this is a very important point. It's something I've been thinking about a lot recently because if you look where we are now, earlier this year, we were very worried about inflation and we even had numbers that surprised to the negative upside for us in inflation this week, but we're still really sort of confident about a cut. And so cutting rates at the same time while inflation is still above target, suggests that as things become more accommodative, that means that we might stimulate the economy and thus cause prices to go up again. So I think we're going to have to watch for the potential that inflation will go up in the future, and we need to think about sectors and areas of our portfolios and our investments that will actually be accretive during an inflationary period. Gold is a good example. Everybody's been talking about this. Take a look at that. It's continued to go up despite everything.

Yeah, it's gold a big commodity to watch there as we see prices hit record highs. Are there other sectors that you're watching? I mean, it seems counterintuitive that there are areas of this market that it's a good thing for inflation. So can you just break that down a little more?

Yes, so we focus a lot on macro themes and different asset classes. And what we have seen is that commodity sector has been in a downward trend. So that's something to watch to see if that bottoms out, or if inflation were to come back and the economy's doing well, you might see a turn in things that are linked to inflation as commodity prices could resurge at some point. So you can take a quick look at the BCOM index, which looks at commodities. They've been down quite a bit. Energy's also been down. So things that would be impacted by sort of a reversal there and those type of cycles and moves is very interesting. We're also been looking at the dollar. The dollar has been strongly weaker in the face of cuts. So thinking a little bit about the relative valuation of things priced in dollars versus other currencies and those opportunities and relative sense globally is also important.

And we're about to enter the second half of September. September seasonally typically a more muted stock performance month for the markets here, but what have been the best trends of September so far?

So this is a good question because there's been few trends that have been easy, particularly in the equity space. But outside of equities, fixed income has been a great trade as long as you got in before the rates moved downward so much. So I'd say that being long fixed income going into September has been the right call. I don't know what will happen next week, but also some short energy positioning has been also an interesting trade this month. So I think really sort of looking outside of the turbulence and equities, you have to look at other asset classes and other opportunities that may be sort of beneficial for your portfolio.