Here you’ll find:

1. An analysis of the post–Jackson Hole reactions.

2. The reactions across currencies, commodities, bonds, and equities.

3. Statistics on returns by category after Jackson Hole.

4. Volume statistics by category and why the market is not confirming

Jackson Hole Reactions, Rate Cuts and the Intermarket

On August 22, at Jackson Hole, J. Powell confirmed the Fed’s willingness to cut rates. Earlier, on August 4, we published on the blog what we called a “macro oscillator,” an article focused on the 2-year yield and its role as a leading indicator for rate cuts. You can read it here.

The macro oscillator signaled the cut. Historically, this has been followed by recession months later.

The rate cut and the intermarket setup

Let’s track what happened since August 22 (Jackson Hole) to see if we can spot the expected capital rotations ahead of a cut.

Refresher.

Rate Cuts: The Dollar

Of course, what we see is just a snapshot of a movie in constant motion. Like analyzing a corporate balance sheet—it’s not the whole movie, but it does reveal a lot about the company itself.

The dollar has been weakening since January 25, and technically it has broken a key support and even retested it.

One note before we begin: all tables are sorted from highest to lowest by the returns Z-score.

Rate Cuts: The Dollar and other fiat currencies

All as expected. Rate cut expectations make the dollar less attractive ceteris paribus against other currencies. In the last column, the Z-score shows the magnitude of the move relative to its usual behavior.

Z = (Xₜ – μ) / σ

This tells us how many standard deviations the current value is from its 52-week average. Because it’s dimensionless, it lets us compare across assets with very different scales—returns, volumes, or volatility.

In a normal distribution:

• ±1σ → ~68% of data

• ±2σ → ~95% of data

• ±3σ → ~99.7% of data

 So, ±2σ covers about 95 out of 100 observations.

Rate Cuts: The Dollar and the pass-through to commodities

Commodities are traded globally, capital-intensive, with production costs usually dollarized and priced in dollars. Naturally, the dollar’s value affects them. These prices push inflation, entering first through PPI and then passing to consumers with varying strength depending on the stage of the macro  cycle. That’s why the

Fed’s preferred inflation gauge is PCE, which adjusts for pass-through effects. Producer margins, as you can see, aren’t on the Fed’s agenda.

Of course, this creates inflationary pressure, managed by the Fed through short-term interest rates.

Rate Cuts and the effect on commodities

It was a positive week for commodities overall, in line with intermarket signals. Looking deeper, volume fell across the board—so prices rose on divergence. Technically, we know what that means. Digging further, volumes were in the first percentile of their own history—very low relative to normal.

Rate Cuts and Bonds

If bonds are a key intermarket category, we need to analyze them from different angles—duration, credit quality, and the market’s risk appetite.

Rate Cuts and Credit Quality

All three types of bonds posted positive returns—nothing major, but still positive. What really stands out in a week confirming a rate cut is the drop in volume across all three. This points to an exit from the category, as each showed similar declines in volume.

Rate Cuts and the Yield Curve

There’s a broad exit from bonds, especially short-term ones. Volumes dropped across the board, even with positive returns.

Rate Cuts, Intermarket, and Bonds

 Does an exit on every credit quality and duration make sense? If rates are falling, why is the market leaving bonds—even short-term ones? This key intermarket wheel isn’t turning.

Rate Cuts and Equities

Let’s approach the analysis from different perspectives to summarize this week’s moves.

 

 Rate Cuts By company type

All showed positive returns, especially small-cap growth. Yet, volumes told a different story—outflows across the board. Going further, none reached even 20% of their usual volume range.

Rate Cuts by sector

All columns are sorted from highest to lowest by returns Z-score. 

Looking at the sector order, it seems like a flourishing economy—cyclicals on top, defensives at the bottom. Some see the rate cut as an economic stimulus. The problem comes when we check volume relative to its range: volume isn’t confirming.

Besides our macro hypothesis, market action fails to confirm.

Credits, New home Markets, labor market, etc,etc,

Conclusions

• We see coherence in intermarket behavior when looking at commodities and currencies.

• In bonds, however, there is no coherence—neither when adjusting by credit quality nor by duration.

• What we observe instead is a broad exit from the category, even in the context of falling short-term rates.

• This clashes head-on with intermarket logic. Something is clearly not aligning.

• When we move on to equities, analyzing from different angles—company type, sector, and size—the same pattern repeats. 

• There is a broad outflow of volume across the category. What we are seeing is rising prices that are not confirmed by volume, and this applies not just to one particular index but to the market as a whole.

• There’s a mismatch in the bond market, which, as we know, is the mother of all markets for the simple reason that it sets interest rates

These calculations are based on Thursday’s closing prices. As I finish the article, I see a small pullback in SPY. However, what really matters is what looks like a bullish breakout in gold. That changes the game for next week. 

Sometimes, it’s better to go fishing than to trade.

Thanks for reading this far. 

Martin