Consider an Equal Weight Strategy Amid Renewed Volatility

Capital markets appear content with playing the rate cut waiting game as the S&P 500 continues to rise to new highs. Meanwhile, renewed volatility could make investors reconsider adding an equal weight strategy to their portfolios.

Credit for much of the S&P 500’s gains has been attributed to choice names in the “Magnificent Seven.” Nividia has been one of the beneficiaries of the artificial intelligence (AI) theme that’s creating a lot of buzz.

Higher-for-Longer Interest Rates Narrative

Percolating in the background, however, is higher inflation numbers. That could keep fueling the higher-for-longer interest rates narrative and thus, add more volatility to the markets. The CBOE S&P 500 Volatility Index (VIX) is up almost 12% for the year as prices continued to rise during the month of February.

“U.S. consumer prices remained strong in February, as shown by today’s CPI data, potentially frustrating hopes of a swift pivot to interest rate cuts by the Fed,” Barron’s reported. The report noted that the “12-month core annual reading was 3.8%, slowing from January’s 3.9%. [But it was] a little faster than the 3.7% expected by economists surveyed by The Wall Street Journal and stubbornly above the Fed’s 2% target.”

A stock market that’s been sensitive to inflation news could mean more volatility ahead as the Fed mulls interest rate policy. The S&P 500 weighted heavily in the Magnificent Seven names only increases the sensitivity to volatile market moves.