Chart in Focus: Is the Fed rate cut positive for risk?

Figure 1: Historically, global equities and credit saw positive returns after resumed cuts

Investment implications

• Historically, resumed Fed rate cuts have supported equity markets in both recessionary and nonrecessionary periods. Despite tariff uncertainty, US equities have generally trended upward, aided by resilient earnings and stable macro data. The shift toward growth-focused policy provides further support for maintaining equity allocations.
• For credit, in prior cycles, resumed Fed cuts have also tended to be supportive. In the months preceding the latest cut, spreads have remained tight and investor demand strong, reflecting an unsatiated appetite for yield and confidence in fundamentals. Despite rate cuts, yields remain above historic averages and continue to offer attractive entry points.
• While we remain constructive, ultimately every market cycle is unique and we acknowledge that equity valuations are high while fixed income spreads are tight. Rate cuts don’t guarantee rallies and as we saw during the bouts of volatility this year due to tariffs and DeepSeek, catalysts for corrections are not always predictable. Investors should continue to prioritize fundamentals.

What we are watching

• Growth/inflation impact of full tariff implementation; trade deals with all major partners not yet final and summer tariffs are still coming online and beginning to manifest in economic data.
• Growth/inflation impact of “One Big Beautiful Bill” which will deliver front-loaded stimulus in the form of tax cuts and deregulation. Deregulatory impact could vary by sector, offering selection opportunities.
• Corporate earnings resilience and broadening. While macro indicators like PMIs and consumer sentiment are softening, corporate earnings have yet to reflect any material deterioration. Tariffs at present are still likely to pose a drag, but rate cuts could soften the impact, especially for areas like small caps and value stocks, which have struggled under higher rates.