As the global market experiences the baptism of "Black Monday", discussions about how much the Fed will cut interest rates in September are also underway. There are even speculations about an emergency rate cut by the Fed.

According to the "Fed Watch" tool, just a week ago, the mainstream expectation was that the Fed would cut interest rates by 25 basis points in September. Today, the expectation has become "at least 50 basis points". The expected rate cuts for the whole year are moving towards 125-150 basis points.

Which industry is likely to benefit if the Fed starts cutting interest rates?

By observing the performance of the US stock market sectors during past rate cuts, it can be found that defensive sectors, including medical care, communications services, finance, and essential consumer goods, tend to perform better.

As can be seen from the graph below, medical care has performed the best throughout the entire rate cut cycle. One of the main reasons medical care stocks can stand out in a rate cut cycle is that they are defensive stocks, with demand that has stickiness and is not dependent on the economic cycle.

In addition, many medical stocks are dividend stocks and are also known for their large share buybacks, which makes medical stocks highly attractive during periods of economic weakness.

Similarly, during a rate cut cycle, essential consumer goods usually perform well due to their stable demand, strong defensiveness, and small influence by interest rate changes.

In addition, rate cuts often benefit public utility stocks.

Over the past two years, as the market worried about continued inflation, the Fed maintained interest rates at a high level after continuous rate hikes. According to FactSet data, during this period, the average return on public utility stocks was 3.4%, which is even lower than the dividend yield of government bonds. This puts pressure on public utility stocks that rely on stable dividends.

With growing concerns about a US economic recession, the market is betting on a Fed rate cut in September, and the 10-year Treasury yield has dropped to about 3.8%, making dividend yields on public utility stocks more attractive.

Looking at the past few trading days, this has also been confirmed. While chip stocks in the US fell, public utility stocks rose against the trend, and the US public utility selected industry ETF $XLU.US$ recorded an increase in August, while the Nasdaq recorded a 7% decline during the same period. $XLU.US$

On the other hand, the surge in electricity demand caused by the AI trend has also driven the rise in US public utility stocks.

More importantly, compared to buying high-priced tech stocks such as Nvidia, Microsoft, and Google, investors can now buy public utility stocks at a relatively cheaper price to participate in the AI boom.

Mooers,

Which industry do you think is suitable for layout during a rate cut cycle?

In 2023, the company's overall sales volume of 18,000 kiloliters, +28.10% year-on-year, significant growth. Product structure, 10-30 billion yuan products operating income of 401/1288/60 million yuan respectively.

Editor/Somer