The Federal Reserve is widely expected to cut rates this week. Softer labor market and inflation data have opened the door: job growth has slowed, unemployment has crept higher, producer prices fell in August, and consumer inflation is broadly contained.
Traders are less focused on the size of the cut and more on what it signals — a turn in the cycle that could ripple across equities, bonds and real assets.
For stocks, easier policy tends to reduce financing costs and lift valuations. Until now, the rally has been powered by a narrow group of mega-cap technology companies. Lower rates could broaden the advance. Technology will remain central, particularly in areas linked to artificial intelligence such as semiconductors, cloud platforms and data centers, but some of the shine may fade from stretched valuations in the largest names.
Other sectors, long neglected, may finally step forward. Utilities, for example, stand to benefit not only from lower bond yields making their dividends look more attractive, but also from surging demand for electricity as AI reshapes power grids. Banks, meanwhile, face pressure on lending margins when rates fall, yet could gain if cuts extend the cycle and keep credit conditions healthy. Loan growth and lower defaults may compensate for thinner spreads, with large U.S. lenders looking more resilient than regional players.
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