Rate-Cut Odds Rise: Duration and Cyclicals Take Center Stage
Commentary:
July brought the exact economic mix the Federal Reserve has been looking for: a second consecutive m/m 0.2% rise in core CPI and only 73,000 new payroll jobs, the lightest monthly gain since 2010. Together, the data pushed futures to price an 74% probability of a first rate cut at the September 17th FOMC meeting. Markets responded in textbook fashion—yields fell, duration rallied, and cyclically sensitive equities caught a bid, while our own portfolios underwent one of the heaviest months of repositioning this cycle.
The S&P 500 advanced 2.24% for the month, pushing the year-to-date gain north of 8% despite late July profit-taking. Microsoft and Meta delivered double-digit earnings surprises on AI demand, lifting the Nasdaq-100 to yet another all-time high. More importantly, market breadth improved: The Russell 2000 added 1.73% as regional banks, and industrial cyclicals joined the party.
A firmer US Dollar, and renewed tariff skirmishes weighed on Developed-EX-U.S. equities; the MSCI EAFE slipped 0.26 %, trimming its enviable 18% YTD run.
Conclusion:
These shifts reinforce our view that the recent pullback is a pause, not an end, to the post April market melt up. By adding Technology (QQQ), Momentum (SPMO), and Small Caps (IWM), we are leaning into the segments most likely to benefit as investors price in lower rates. Extending duration with IEF and LQD and keeping an allocation to rate-sensitive Utilities (XLU) positions us for further upside if a July cooling CPI cements a September cut. Beyond that first move, we expect inflation to re-accelerate modestly as easier policy lifts demand, a backdrop that typically supports secular growth stocks and commodities such as Silver and Gold.
Model Performance Update
Our Moderate Model Portfolio returned 0.53% during the month of July and has returned 6.6% YTD
Changes to the model portfolio in July
7/7/2025
- Added IEF (7-10 Year Treasury Bonds) and LQD (Investment Grade Corporate Bonds) to Satellite 2
7/8/2025
- Added SPMO (Momentum) to Satellite 1
7/15/2025
- Removed XLP (Consumer Staples) from Satellite 1
- Added XLB (Materials) to Satellite 1
- Added BNO (Brent Oil) to Satellite 3
7/18/2025
- Removed EWP (Spain), EWZ (Brazil), EWW (Mexico) and INDA (India) from Satellite 1
7/31/2025
- Added XLF (Financials) and IWM (Small Cap) to Satellite 1
- Added SIVR (Silver) to Satellite 3
8/1/2025
- Added QQQ (Tech) to Satellite 1
- Increased exposure to IWM (Small Cap) and XLF (Financials)
- Reduced CTA (Managed Futures) in Satellite 5
July Performance with Benchmark
YTD Performance with Benchmark
If you were to have any questions regarding the above please reach out to us to set up a one to one meeting to review your situation.
Sincerely,
Bryant Andrus, MSF, CFP®
President
SBC Investment Management
P: (602) 641-5996
M: (319) 520-2033
E: bandrus@sbcinvestmentmanagement.com
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