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What sectors should investors be targeting, and is there a rotation underway that's going to last? We want to bring in Peter Garnry. He is Saxo Bank, a chief global equity strategist. So Peter, answer the question for us. We've been talking a lot about this rotation trade, now the fact that the Fed has cut by 50 basis points, maybe we're going to see small caps and mid caps catch a bit. What do you think? Is there more upside and what does that upside look like?

Yeah, I think we, we're coming off a very high equity index concentration with the magnificent seven, etc. in that top of the pile and the S&P 500 controlling the market. I think we are at a tipping point where, you know, a trajectory with lower interest rates will, will lift all boats in the US equity market. So, I think we'll begin to see the broader market beginning to outperform relative to the, to the mega caps. So I think, um, we're not afraid of this interest rate trajectory going lower. We will look at the past 20 rate cycles that have been since 1957. You can see that only three paths led to a negative return in the subsequent two years. And that was the 73 rate cycle, 2000 and 2007. Uh, all the other paths led to a positive return and actually the median path was actually quite positive. So, of course you need the context, but we think the US recession probability is still low. So we're quite constructive, um, and we think it's an opportunity for investors to look at, do you have the right components in a cycle where policy rates are slowly drifting lower? You mentioned real estate is having a good day today. I think we'll begin, we will continue to see this rotation into some of the more, you know, positive sensitive sectors to, to interest rates. Uh, home builders is another one that is, is doing quite well.

You also mentioned consumer discretionary, uh, could be one of the areas that people adjust their portfolios to. Why, why do you think that is, especially if we were to see, you know, more potential deterioration economically that would lead the Fed to cut even more?

Yeah, so I, I think that our base case scenario is that the, the interest rate path that we are seeing right now from the Fed is, um, they're adjusting the level according to the inflation, not because we're rolling into a recession. So, if we get that type of scenario with the soft landing and lower interest rates, that should be positive consumer discretionary. We can see in the US consumption patterns that overall consumption is actually doing okay at that aggregate level, but it's really particularly the big, uh, big consumer items that are being holding back. Um, and that's obviously tied to interest rates. We see that with the car industry. So, so that's one of the sectors that we think could, could come back into, to favor, um, as we go forward from here.

Peter, why do you see the recession risk as very low or still very low at this point?

Yeah, so I mean, you can track an economy across a wide range of indicators. And I, what I've been saying for many years is that we have had a very unusual cycle since the pandemic. And you can pick 10 indicators very quickly that show you that, oh, we're going into a recession. But I can very quickly also show you and find 10 indicators that are showing things are going okay. We really like the high frequency, the weekly series that is really a real-time estimate of where US GDP growth is right now. And the US economy is, is growing very closely to trend growth around 2% GDP. Wages are still looking okay. The labor market has stabilized if you look at the weekly series from the, from Indeed job postings. So we're not really seeing that we're rolling over a cliff here and moving into a recession. I think a lot of what's happening is that the interest rate cycle that played out in 2000, 2007 is so recent that they are still impacting a lot of investors' judgments about what this rate cycle means. And we think that's misguided if you look at the more longer-term perspective. Rate cycles are not negative rate cut cycles, I should say, are not necessarily that negative. And we're not seeing a recession, but of course we can be wrong, but we put the probability still in the, in the low end over the next year at maximum at 25%.