Today, let's analyze the hottest topic in the capital market. On September 18th, the Federal Reserve announced a 50 basis point cut in the federal funds rate, bringing it to a range of 4.75% to 5%.
The current market focus is: After the first rate cut in over four years, which assets will benefit from the increase? The key question is whether this round of rate cuts is recessionary or preventive.
1 Recessionary Rate Cuts vs. Preventive Rate Cuts
In fact, these two paths have vastly different impacts on financial assets. Recessionary rate cuts refer to situations where the real economy has already experienced serious problems, and the Fed rapidly lowers interest rates to support the economy. For example, during the 2008 financial crisis, which significantly impacted the global economy, the Fed quickly reduced rates to the 0%-0.25% range. Under this scenario, panic permeates society, and both professional investment institutions and retail investors sell off risky assets. Stocks and real estate are not spared, with only a few safe-haven assets like government bonds and gold able to rise.
Preventive rate cuts occur when the economy is cooling, and the Fed cuts rates preemptively to avoid recession risks. In this case, risky assets like stocks perform much better. On one hand, corporate earnings don't decline, and on the other, rate cuts can increase stock valuations.
2 The Current Round of Rate Cuts
From the current perspective, this round of rate cuts is more likely to be preventive. Although the U.S. labor market and employment data have deteriorated somewhat. They remain within an acceptable range. Additionally, the stock market's reaction to the rate cut has been relatively stable, with the S&P 500 index reaching new highs for the year, indicating that the market doesn't perceive an imminent recession risk.
In this situation, U.S. stocks are likely to benefit the most. First, focus on large-cap tech stocks, which remain the most profitable companies globally. The effect of lower interest rates on valuation expansion is also significant, especially for companies with substantially improved performance, such as Meta. Meta's AI glasses sales have exceeded expectations and could become the first blockbuster AI hardware product.
Consumer stocks should also be considered, as lower interest rates help stimulate consumption. Industries like automobiles and home appliances are likely to see growth.
The second major beneficiary is U.S. bonds. Falling interest rates drive bond prices up, especially for longer-duration U.S. Treasury bonds.
Lastly, gold prices have a long-term inverse relationship with real interest rates, so it's advisable to keep an eye on gold prices.
