Wolfe Research sees U.S. market cycle shift to late acceleration

Investing.com -- Wolfe Research reported that the U.S. economy has moved into the third phase of the market cycle, known as Late Acceleration, following a strong ISM Manufacturing report for July released last Monday.

The S&P 500, NASDAQ-100, and Russell 2000 gained 3.6%, 5.1%, and 3.5% respectively at the start of August, with the S&P 500 reaching new all-time highs and breaking above a two-month trading range.

The research firm uses the six-month moving average of the ISM New Orders component as the basis for its market cycle framework. The manufacturing expansion has been driven by hyperscaler spending on AI infrastructure and falling wholesale inventories relative to sales, which has prompted an inventory build within the economy.

Wolfe Research expects this mid-cycle phase to end when the six-month moving average of the ISM New Orders component peaks, which it anticipates will occur towards the end of this year or early 2027 as the headline index approaches 60.

The firm noted that investors will focus on inflation reports this week, with July CPI data set for release on Wednesday and July PPI data on Thursday. Following last Friday's weaker-than-expected payrolls report, expectations for the Federal Reserve to hike interest rates at its September meeting have fallen.

For positioning during Late Acceleration, Wolfe Research said the phase typically favors Technology, Energy, Financials, Health Care, and Industrials sectors. The firm maintains an underweight stance on Financials due to volatile interest rate policy under the Kevin Warsh regime and the potential for an inverted yield curve in the first half of 2027.

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