Equity market leadership has historically undergone a significant rotation when the Federal Reserve starts raising interest rates, with Value tending to hold up better than Growth and small caps initially coming under pressure, according to Barclays.

The analysis comes as financial markets increasingly price in the possibility of a Fed rate increase by the first FOMC meeting of 2027. That shift has occurred even as expectations for inflation over the near and medium term have eased.

Barclays economists remain more cautious about the prospect of tightening and expect no rate increases during the first half of 2027. Recent inflation readings, they said, should be “sufficiently benign to keep most FOMC members on hold pending further evidence.”

Energy leads before the first Fed hike

To assess the potential market implications, Barclays examined five tightening cycles going back to February 1994 and compared sector and factor performance immediately before and after the first rate increase.

According to the bank, “the onset of a Fed hiking cycle has historically marked a clear inflection point for equity leadership.”

The S&P 500 generated a median return of 2.2% during the three months before the first hike, while small-cap stocks delivered roughly flat performance.

Energy and Industrials stood out during the run-up to higher rates, each recording median gains exceeding 7.5%. Communication Services moved in the opposite direction, falling approximately 2%.

Financials suffer once rates begin rising

The historical picture became less favourable after the first rate increase. The Russell 2000 fell by a median 7.2% during the subsequent quarter, considerably worse than the S&P 500’s median decline of 3.9%.

Financials were the weakest-performing sector, posting a median loss of 8.4%. Health Care, Utilities and Consumer Staples also struggled, despite their traditionally defensive characteristics.

Energy proved the exception, generating a modest median gain of 0.3%.

Barclays said Financials can be hurt by the combination of tighter financial conditions and flattening yield curves, which weigh on lending margins. Defensive sectors have also historically experienced valuation pressure when a rate increase signals confidence from policymakers that the economy can withstand tighter monetary conditions.

Value advantage strongest among small caps

Within style factors, Barclays found that Value has “generally fared better than Growth, especially within small caps.”

Large-cap Growth historically trailed Value over the two quarters following the first rate increase. Among smaller companies, the difference was greater, with the shift “even more pronounced among small caps, where Growth trails Value sharply within the first two months of the hiking cycle.”

Momentum typically performs strongly in advance of the first hike but becomes more range-bound once tightening is underway.

The Fama-French small-over-large factor has also tended to weaken during approximately the first two months of a hiking cycle, before subsequently entering a more sustained recovery.

JPMorgan Chase is adjusting its approach to loans secured against shares in newly public companies as it looks to expand its business with wealthy individuals connected to the technology sector, according to a Financial Times report published Tuesday.

The bank normally requires a company to have been publicly traded for at least 135 days before accepting its stock as collateral for a loan.

That restriction was reportedly relaxed in connection with SpaceX’s June initial public offering. Before the company went public, JPMorgan advised its bankers that lending against shares in Elon Musk’s rocket and AI business could begin sooner than would typically be permitted under the bank’s policy, the FT said.

Bank could extend flexibility to Anthropic

A similar approach could potentially be applied to Anthropic when the Claude developer reaches the public markets, according to JPMorgan bankers cited by the Financial Times.

Such a move would give the bank greater flexibility when serving technology founders, executives and shareholders whose wealth may be heavily concentrated in shares of companies that have only recently completed an IPO.

JPMorgan has not yet made a final decision regarding Anthropic, however, and its eventual lending policy for the company’s shares remains subject to change, according to the report.

Gold traded close to unchanged on Friday as markets awaited Federal Reserve Chair Kevin Warsh’s Jackson Hole address for further indications on the direction of U.S. monetary policy.

Spot gold was little changed at $4,600.19 an ounce at 02:50 ET, or 06:50 GMT. U.S. gold futures were down 0.3% at $4,651.41.

The metal had climbed to a three-month high near $4,700 an ounce earlier in the week as concerns surrounding U.S. fiscal policy and Treasury measures involving longer-dated bonds contributed to demand.

Gold was nevertheless on course for a small weekly decline, which would end a run of three consecutive weekly gains.

Warsh address puts interest-rate outlook in focus

Warsh is scheduled to speak at 10 a.m. ET, or 1400 GMT, on Friday at the Federal Reserve’s Jackson Hole symposium.

The appearance will be his first major Jackson Hole address as Fed chair, with investors monitoring his comments for indications of how policymakers are assessing inflation and interest rates.

Recent economic data have complicated expectations surrounding monetary policy. The personal consumption expenditures price index, which is closely monitored by the Federal Reserve, rose 3.7% in the 12 months through July.

Markets were assigning a 34% probability to an interest-rate increase in September and a 74% probability of an increase by December, according to the CME FedWatch tool.

Those percentages reflect market pricing rather than guidance from the Federal Reserve.

Gold remains sensitive to yields and the dollar

Expectations for U.S. interest rates remain relevant to gold because the precious metal does not provide an interest yield.

Higher rates can increase the relative appeal of interest-bearing assets, while declining yields can reduce the opportunity cost associated with holding gold.

The metal has also recently received support from a weaker U.S. dollar, which can reduce the cost of dollar-denominated gold for buyers using other currencies.

Despite being on track for a modest weekly decline, gold has gained more than 13% during August.

Silver, platinum and copper trade higher

Other metals moved higher during Friday’s session.

Silver increased 1.3% to $70.11 an ounce, while platinum rose 1.8% to $1,882.60 an ounce.

Copper also advanced, with benchmark futures on the London Metal Exchange gaining 0.4% to $14,338.15 a tonne.

U.S. copper futures were 0.2% higher at $6.68 a pound.

Oil prices moved lower on Friday, putting Brent and West Texas Intermediate on course to end two consecutive weeks of gains as markets continued to assess developments involving the United States and Iran.

Brent crude futures fell 60 cents, or 0.67%, to $89.10 per barrel at 0636 GMT. WTI futures declined 64 cents, or 0.77%, to $82.89.

For the week, Brent was heading for a 5.3% decline, while WTI was on track to fall 4.3%.

Strait of Hormuz oil shipments show signs of increasing

Oil markets continued to monitor shipping activity through the Strait of Hormuz alongside diplomatic developments involving Washington and Tehran.

“Despite diplomatic efforts hitting a roadblock, there are growing signs of additional oil flowing through the Strait of Hormuz,” ING analysts said in a note. “As the conflict persists, producers are adapting to the new realities and becoming increasingly comfortable navigating the strait.”

Goldman Sachs estimated on Thursday that total Gulf exports had recently reached between 15 million and 16 million barrels per day.

The estimate remained 7 million to 8 million barrels per day below pre-war levels but represented an increase of between 5 million and 6 million barrels per day from the low reached in March.

Trump administration reportedly rejects return to June agreement

Crude prices had settled higher on Thursday after The Wall Street Journal reported that the Trump administration was not seeking a return to the terms of a June memorandum of understanding with Iran.

Citing people familiar with the matter, the report said the U.S. administration had repeatedly informed mediators that it had no interest in reviving the agreement, creating an additional complication for diplomatic efforts to resume negotiations.

Washington separately said earlier on Thursday that it was not holding talks with Iran, despite attempts by other countries to facilitate renewed discussions.

Washington announces additional sanctions against Tehran

The United States announced further measures against Iran on Monday, describing them as the “toughest sanctions in history”.

Iran responded by describing the sanctions as an “inhumane and hostile act” and saying that they had lost their effectiveness.

Those descriptions represent statements from the respective governments rather than independent assessments of the measures.

Russia warns of possible response involving British military targets

Separate geopolitical developments also remained under consideration after Moscow issued a warning concerning Ukrainian attacks on Russian territory using British-supplied long-range cruise missiles.

Russia said it could respond by striking British military targets both inside and outside Ukraine.

U.S. President Donald Trump, however, said Russian President Vladimir Putin would not attack a member of the North Atlantic Treaty Organization.

Trump also played down media reports that CIA Director John Ratcliffe had warned Russian officials this week against carrying out such an attack.

Britain is a founding member of NATO.