According to the Zhongtong Finance APP, as the Federal Reserve begins its interest rate cutting cycle, Wall Street traders face a unique challenge - history is no longer guiding.

When interest rates fall, the classic trading strategy is to buy stocks in sectors considered defensive, because the demand for these sectors is not affected by economic conditions, such as essential consumer goods and medical care. Another popular trading strategy is to buy stocks in sectors that pay high dividends, such as utilities. The reason is that the Fed usually lowers interest rates to counter economic weakness or boost an economy that is already in a recession. During this period, stocks in growth sectors like technology often tend to be affected.

However, this situation is not occurring now. On the contrary, the economy is growing, stock indices are reaching historic highs, corporate earnings are expected to continue growing, and the Fed has initiated a rate cut cycle of 50 basis points.

Antimo senior portfolio manager Frank Monkam said, "In a fairly loose financial environment, the Fed has chosen to cut rates significantly. This is a clear signal that stock investors should take a fairly aggressive position." "Traditional defensive stocks, such as buying utilities or essential consumer goods, may not be very attractive."

So where should stock investors look? Walter Todd, President and Chief Investment Officer of Greenwood Capital Associates LLC, believes that financial stocks are a good choice. He is buying stocks of regional banks such as Bank of America (BAC.US), JPMorgan (JPM.US), and PNC Financial Services Group (PNC.US). Walter Todd said, "The Fed's interest rate cut should reduce the financing costs of banks. The interest they pay on deposits should be less than before, which should help their net interest margin."

David Lefkowitz, Head of UBS Global Wealth Management US Equities, is also bullish on financial stocks and industrial sectors closely related to strong economic performance.

This positioning contradicts historical experience. Data compiled by Strategas Securities shows that in the past 30 years of four interest rate cutting cycles, investors have chased stocks in sectors such as utilities, essential consumer goods, and healthcare, which pay high dividends and are popular among income-oriented investors when bond yields decline.

Data from Strategas Securities also shows that six months after the first rate cut in the four interest rate cutting cycles mentioned above, the best-performing sector was utilities, with an average increase of 5.2%. The technology sector performed the worst, with an average decrease of 6.2%. Real estate, non-essential consumer goods, and financial sectors also saw significant declines.

Historically, in the case of a rate cut by the US Federal Reserve and a strong economic performance, overall bullishness is a successful approach. Data from Bank of America shows that since 1970, as long as the economy avoids a recession, the S&P 500 index has averaged a 21% increase in the year following the first rate cut in an easing cycle.

More importantly, in the past nine easing cycles, eight of them occurred when corporate profit growth decelerated. However, Savita Subramanian, the head of US stocks and quantitative strategy at Bank of America, pointed out that corporate profits are currently expanding, which is beneficial for cyclical stocks and large-cap stocks. She said, "The Fed doesn't have a script. Each easing cycle is different."

Currently, investors seem to be buying back large-cap tech stocks and other growth stocks in the market. Goldman Sachs' bulk trading data shows that hedge funds' net buying of US tech, media, and telecom stocks last week reached the highest level in four months.

At the same time, as interest rates are falling, other investors are attracted to stocks that will benefit from increased spending by Americans. Phil Blancato, CEO of Ladenburg Thalmann Asset Management, said, "Consumers will be very excited. After the interest rate cut, consumers getting mortgages will stimulate spending, whether it's the real estate market, the auto market, or year-end spending."

Joe Gilbert, portfolio manager at Integrity Asset Management, believes that mall operators such as Simon Property Group (SPG.US) and industrial sectors in the real estate industry like Prologis have opportunities. Joe Gilbert stated, “Many real estate companies have debt that needs refinancing. We believe that low interest rates will definitely help them.”

Utility stocks are also popular, but not because of their dividends. Mike Bailey, Research Director at Fulton Breakefield Broenniman LLC, said the reason is that these companies are involved in the field of artificial intelligence technology, which attracts investors. In fact, the utility sector has performed very well this year, with a 26% increase, making it the second best performing sector in the S&P 500 index, to the point where their valuation may be becoming too high.

Mike Bailey said, "It's hard to know if we've already digested all the good news in the utility sector. It feels like these companies may not have another opportunity to outperform the market."

However, in this crazy bull market, anything seems possible - at least for now. Investors have shrugged off concerns about overvaluation of tech stocks, increased volatility, US political uncertainty, and slowing hiring. Wall Street almost had no analyst predicting that the S&P 500 index would break through 5700 points by the end of 2024. Yet the index closed at 5702.55 points last week, rising another 20% since last year's 24% increase. Phil Blancato said, "This is the best case scenario. By the end of this year, the S&P 500 index may have a chance to approach 6000 points."