On Wednesday, Eastern Time, Fed voting member Daly stated that the Fed needs to cut interest rates to maintain a healthy job market, once again strengthening the market's view that a rate cut in September is a done deal.

As the US Federal Reserve's monetary policy shifts from tightening to easing, savvy investors are also asking further questions about which assets are expected to have investment opportunities in a global monetary policy shift, declining interest rates, and an upcoming round of liquidity easing.

除了此前文章提及的医疗股,公共事业股,Consumer staples.,Communication servicesIn addition, this article will bring to mooers another industry that benefits greatly from the Fed's interest rate cut cycle - financial stocks.

Looking at the industry performance this year, financial stocks have shown strong momentum. $Financial Select Sector SPDR Fund (XLF.US)$ It has risen nearly 22% year-to-date, while$S&P 500 Index (.SPX.US)$The increase is only 16%.

Under the interest rate reduction cycle, financial stocks are expected to stand out.

Although Warren Buffett has recently reduced his massive investment in Bank of America this year, which has brought negative impact on the sentiment of the financial industry. However, the layout of the options market and the recent performance of the stock market indicate that aggressive investors are preparing for significant returns.

From the performance of the financial industry this year, the financial giants have achieved historical highs, including:

The largest commercial auto insurance giant in the United States $Progressive (PGR.US)$ The stock has risen more than 60% this year, the American insurance giant $Allstate (ALL.US)$N/A.$Berkshire Hathaway-B (BRK.B.US)$ One of the largest insurance companies in the USA$UNI HEALTH (02211.HK)$Insurance company $Aflac Inc (AFL.US)$ One of the largest insurance brokerage companies in the world $Arthur J. Gallagher (AJG.US)$ All rose more than 33%.

In addition, the American private equity giant $KKR & Co (KKR.US)$ , payment giant $American Express (AXP.US)$ , banking giant $JPMorgan (JPM.US)$ Nvidia. $Goldman Sachs (GS.US)$ CNI Xiangmi Lake Fintech Giants $Fiserv (FI.US)$ which have also risen by over 29% so far this year.

In addition to these financial stocks, there are many other ETFs related to finance in the US market that investors should pay attention to. Currently, the five largest ETFs include $Financial Select Sector SPDR Fund (XLF.US)$Please use your Futubull account to access the feature.$Vanguard Financials ETF (VFH.US)$Please use your Futubull account to access the feature.$Spdr Series Trust S&P Regional Bkg Etf (KRE.US)$ 、  $Ishares U.S. Financial Etf (IYF.US)$and$Direxion Daily Financial Bull 3X Shares ETF (FAS.US)$ The year-to-date increase is in the range of 9% to 60%.

What advantages does the financial industry have during an interest rate cut cycle?

The financial industry contains huge investment opportunities during an interest rate cut cycle. The reasons are as follows:

The interest rate reduction policy directly reduces the funding cost of financial institutions and expands the profit margin. Banks can obtain funds at lower interest rates and then lend them at higher interest rates, thereby increasing interest income.

At the same time, the activity of the securities market tends to increase during an interest rate cut cycle, and brokerage, investment banking, and asset management businesses are expected to see growth.

The insurance industry also benefits from interest rate cuts, as the lower interest rate environment motivates more people to seek insurance products to protect their assets and plan for the future.

Wells Fargo & Co. stated that in the case of an economic soft landing and expected interest rate cuts, bank stocks are expected to rebound and outperform benchmark indices. The bank's analysis suggests that historically, interest rate cuts in the absence of an economic recession have been beneficial for bank stocks.

For example, in 1995, 1998, and 2019, interest rate cuts stimulated the rise of US bank stocks. Initially, there may be a brief decline of about 6% within the first one to two weeks, but then there is a significant increase, with the final peak being about 21% higher than the low point after the interest rate cut. Furthermore, in the context of an economic soft landing, the quarterly increase in US bank stocks after the first interest rate cut exceeds the S&P 500 index by nearly 10%.

However, Wells Fargo & Co. also warns that if interest rate cuts are accompanied by a recession, the prospects for bank stocks will not be optimistic. For example, in 1989, 2001, and 2007, bank stocks not only experienced a slight decline after the first interest rate cut, but also performed poorly in the following quarters, with bank stock performance lagging behind the S&P 500 index by about 4%.

Furthermore, the bank also points out that the investment window for the rebound of bank stocks is mainly focused on the first quarter after the initial interest rate cut. In 7 out of 8 interest rate cut cycles in the past, bank stocks have underperformed the S&P 500 index over the period of 3-12 months after the first interest rate cut. Therefore, the bank's analyst team emphasizes the need for investors to act quickly in order to seize the profit opportunities in the early stages of interest rate cuts.

In addition, investors are also betting that regional bank stocks may catch up due to the rate cuts by the Federal Reserve, as the rate cuts provide much-needed relief for regional banks that have been struggling.

Ed Yardeni, Chief Market Strategist at Yardeni Research, said: Going forward, the gradual rate cuts by the Federal Reserve over the next six months would be really helpful for banks with quite poor credit quality. As a result, there might be a catch-up trade in regional bank stocks.

Is the US expected to cut interest rates? Interest rate-sensitive long bonds, small-value stocks, biotech stocks and other assets have benefited from the rebound, and savvy investors who have deployed early have already gained profits! If you are still unsure about which assets to allocate during an interest rate cut cycle? How to allocate?Take a look at the "Interest Rate Investment Lazy Pack" course, which comes with the most comprehensive guide >>.

Editor/Somer