As the Federal Reserve opens a loose cycle for the first time in four years, has the stock market's interest rate cut trading manual changed?

Generally speaking, when the Federal Reserve cuts interest rates to boost the economy, out of the need for safe-haven, investors often choose defensive stocks and high dividend stocks, avoiding growth stocks including the technology sector that are easily influenced by macroeconomic factors.

However, due to the resilience of the US economy during this interest rate cut, the leading gainers are technology stocks, the stock market hits record highs, the economy continues to grow, and the outlook for corporate profits improves.

From the perspective of capital flow after the interest rate cut, investors are shifting from defensive stocks to cyclical stocks.

According to Goldman Sachs' bulk brokering business data, last week, hedge funds bought TMT stocks (technology, media, telecommunications) for the third consecutive week with a net position reaching the highest in four months, while defensive stocks saw the largest net selling in over two months, with the outflow of funds from utility stocks reaching the largest scale in over five years.

Frank Monkam, Senior Portfolio Manager at Antimo Company, says:

"The Federal Reserve's significant interest rate cut in a fairly loose financial environment is a clear signal to the market that an aggressive position should be taken in holding positions."

Traditional defensive stocks, such as utilities or consumer stocks, may not have much appeal.

Why is this rate cut different from history?

Why is this rate cut called a "non-recessionary rate cut"?

According to Bank of America's data, in 9 easing cycles since 1970, 8 occurred during corporate profit deceleration. However, the bank's stock and algo strategy chief Savita Subramanian wrote in a client report: The current situation is that profits are expanding, which benefits cyclical stocks and large cap stocks.

This means the Fed is not cutting rates due to economic recession, Subramanian says:

"The Fed has no script - each easing cycle is different."

However, looking at historical rate cut cycles, the Fed's rate cuts often drive overall market gains.

Bank of America data shows that since 1970, in the absence of an economic recession, the S&P has on average risen by 21% in the year following the Fed's first rate cut.

Investment styles switching: banks, technology, real estate are popular.

So, what kind of investment style did the "non-recession rate cut" by the Federal Reserve bring this time?

As Subramanian said, investors are turning to cyclical stocks, large cap stocks, and other industries that are currently experiencing growth.

Benefiting from the stimulus effect of loose environment on consumption, industries such as real estate and autos are also expected to achieve growth. Phil Blancato, CEO of Ladenburg Thalmann Asset Management, said,

"You will see excited consumers - the decrease in mortgage rates will stimulate consumption, whether in the housing market or the auto market."

Utility stocks in traditional trading strategies remain hot as the AI investment boom has increased the attractiveness of this industry. In fact, utility stocks have risen 26% year to date, making it the second best-performing industry sector in the S&P.