Top Stocks and Sectors Benefiting from US Rate Cuts

This site is a great place for me (@mifsee(2) has been working on company and stock analysis while learning privately.

This is only a record of my personal analysis and the contents may contain errors or information that differs from the actual situation. Please understand in advance when viewing this site.

This article is a two-page article due to the very large amount of content.

Introduction.

With the Fed's inflation-fighting rate hikes, price increases have begun to subside and financial markets are gradually moving toward lower interest rates.
In order to examine which sectors and ETFs to invest in during these phases, I have compiled my own in-depth list of relevant stocks.

Major tidal shifts, such as cycles in economic conditions, changing market conditions, and political factors, always have a significant impact on investment activity.
We would like to understand these flows correctly and respond appropriately so that we can make better decisions.

What is the Fed's interest rate cut?

A rate cut by the Federal Reserve (Fed) refers to the policy of the Fed, the central bank of the United States, to lower interest rates.
Interest rates are the cost of borrowing money.

When the Fed lowers interest rates, the cost of money lent by banks to businesses and individuals will also decrease, which is expected to stimulate economic activity.

Reasons for interest rate cuts

Interest rate cuts are often made under the following circumstances

• economic stimulation: When the economy is stagnant, it is done to encourage businesses and individuals to spend more money. When interest rates are low, the cost of borrowing goes down, making it easier for businesses to increase capital investment and for individuals to take out mortgages and buy homes.
• price stabilization: When inflation (price increases) is weak, interest rate cuts are made to stimulate the economy and promote moderate inflation.

Simply put, the Fed's decision to cut rates is like a call to the entire economy to "Spend more money, stimulate the economy!" is like a call to arms.
For example, if you are looking to buy a car and the interest rate on your loan falls, it will be easier to buy a car because you will pay less each month.

The same applies to companies, making it easier for them to build new factories and add jobs.
Thus, interest rate cuts are one of the most important ways to support the economy.

How will the U.S. interest rate cut affect the stock market?

Interest rate cuts usually have a positive impact on the stock market.
Lower interest rates make it easier for firms to borrow and lower the cost of financing investment and growth, which increases the likelihood of higher corporate profits and higher stock prices.

Also,As bond yields decline, investors will also be more inclined to move their money into equities, increasing demand for the stock market.

Impact on specific sectors

Interest rate cuts have a particularly strong impact on certain sectors.
For example, certain sectors are likely to benefit, such as the real estate industry, which is likely to benefit from lower mortgage rates, and technology companies, which are likely to benefit from the increased financing provided by lower interest rates.

Risk Aspects

However, rate cuts do not always have a positive effect on the stock market.

If lower interest rates are interpreted as a signal that the economy is slowing down, there is a risk that investors will become wary and stock prices will fall.
Also, if a rate cut is already factored in, its effect may be limited.

Long-term impact

In the long run, interest rate cuts are expected to stimulate the economy, improving corporate performance and supporting higher stock prices, but excessive rate cuts risk inflation.
Eventually, interest rates may need to be raised again.

This could become a new source of uncertainty for the stock market.

In general, it is important to understand that while U.S. interest rate cuts tend to have a generally positive impact on the stock market, the impact depends on market conditions and the economic outlook.

Which sectors look particularly promising at a time of interest rate cuts?

There are several sectors that benefit when interest rates are lowered, and these sectors are likely to benefit from lower rates.

Real Estate Sector

This is because home purchases are more likely to increase when mortgage rates fall as a result of interest rate cuts,Companies involved in real estate development and home sales are likely to benefit from this.
Commercial real estate is also expected to see increased investment due to lower corporate borrowing costs, and real estate in general is considered promising.

Utilities Sector

The utilities sector has stable cash flows and lower interest rates make it relatively more attractive.
Interest rate cuts have increased its attractiveness as a high-dividend stock, and it is attracting attention as investors seek less risky assets.
This sector is typically less sensitive to the economy and is expected to provide stable returns even in a low interest rate environment.

Technology Sector

Technology companies are more growth-oriented, and lower borrowing costs will make it easier for them to allocate funds to R&D and capital expenditures.
Especially for startups and companies in the growth phase,The low interest rate environment makes financing easier to obtain and provides an opportunity to increase competitiveness.

Consumer Goods Sector

The consumer goods sector is also promising, as low interest rates increase individuals' disposable income and encourage consumption. In particular,Durable consumer goods (e.g., automobiles and home appliances) are often purchased with consumer loans and are likely to benefit from interest rate cuts.

Gold related

When interest rates are lowered, the value of the currency may decrease as interest rates fall. This will cause investors to tend to move their money into gold as a means of protecting against inflation and protecting their assets from a decline in the value of the currency.
Gold is an asset that traditionally acts as an inflation hedge, and its demand can increase during periods of interest rate cuts.

These sectors are areas that should receive particular attention during periods of interest rate cuts. It is important to understand the characteristics of each sector and determine when to invest.

Fixed Income ETFs

In general, bond prices rise when interest rates fall.
When interest rates are lowered, yields on newly issued bonds fall, making existing high-yield bonds more attractive and, consequently, bond prices rise.
Therefore, bond ETFs are more likely to rise in price during a rate cut phase.

However, if interest rates fall extremely low, the yield on newly issued bonds will be low, which may suppress future returns. Also, if the price of the bond becomes too high, there is a risk that the price will fall during a subsequent phase of rising interest rates, and caution should be exercised.

In general, bond ETFs can be a promising option for investors seeking stable returns with limited risk during a period of interest rate cuts.

Which sectors are at risk when interest rates fall?

While many sectors benefit when interest rates are lowered, some sectors are at increased risk. Below are the main sectors considered at risk when interest rates are lowered.

Financial Sector

The financial sector, especially the banking industry, is at risk of having its earnings squeezed as interest rate cuts reduce interest margins (the difference between lending and deposit rates). Since banks' main source of income is the interest rate differential, a low interest rate environment could reduce profitability and depress stock prices. 

Insurance Sector

Insurance companies are also strongly affected by interest rate cuts. Life insurers, in particular, are at risk of lower yields on their invested assets, which would reduce their long-term earnings. In addition, the pricing of insurance products will also be affected, so interest rate cuts are often a headwind for the insurance sector as a whole.

Consumer Finance Sector

Consumer finance and credit card companies are also at risk of reduced profitability as interest rates fall, resulting in lower lending rates. Since these companies often earn high returns on the back of high interest rates, their profit margins will shrink when interest rates fall.

Energy Sector

The energy sector, especially the oil and gas industry, is less directly affected by interest rate cuts, but a prolonged low interest rate environment could lead to lower energy prices and weak demand. In addition, there is a risk that a low interest rate environment will accelerate investment in renewable energy, which could lead to increased competition for traditional energy companies.

Residential Construction Sector

Although interest rate cuts seem favorable to the homebuilding sector at first glance because they lower mortgage rates, there is a risk that the housing market could enter a phase of oversupply or price adjustment if the timing of rate cuts is delayed or in the context of an overall economic downturn.
In addition, if interest rates remain very low, a housing bubble could develop and pose a significant risk during the subsequent adjustment phase.

Which ETFs are promising in the real estate sector with high interest rate benefits?

VNQ (Vanguard Real Estate ETF)

• summary: VNQ is an ETF that invests broadly in U.S. real estate investment trusts (REITs), diversifying across the entire U.S. commercial real estate market and offering the potential for stable dividend income.
• feature: VNQ has a widely diversified portfolio throughout the U.S. market, with an emphasis on commercial and residential real estate. It also has relatively low management costs.
• dividend yield: 3.84%

VNQ's real-time stock price chart

IYR (iShares U.S. Real Estate ETF)

• summary: IYR is an ETF that invests in the broad U.S. real estate market, providing access to a wide range of commercial, residential and industrial real estate sectors.
• feature: This ETF is sensitive to specific real estate market trends and offers a balanced investment approach; similar to VNQ, but with slightly different constituents, and can be expected to respond to different market trends.
• dividend yield: 2.63%

IYR's real-time stock price chart

XLRE (Real Estate Select Sector SPDR Fund)

• summary: XLRE is an ETF that tracks the real estate sector of the S&P 500, concentrating on major real estate stocks and offering high liquidity and stable dividends.
• feature: Concentrated investments in real estate companies included in the S&P 500, with growth potential in a stable market. The risk is slightly higher, but the potential is also high.
• dividend yield: 3.20%

XLRE real-time stock price chart

KBWY (Invesco KBW Premium Yield Equity REIT ETF)

• summary: KBWY is an ETF focused on high dividend yielding REITs. It concentrates on small- to mid-cap REITs and is suitable for investors seeking high dividend yields.
• feature: Designed for investors who value dividend income and can expect higher returns than other ETFs, but with higher risk.
• dividend yield: 7.74%

KBWY's real-time stock price chart

Which ETFs are promising in the utilities (utility) sector with high interest rate benefits?

XLU (Utility Select Sector SPDR Fund)

• summary: XLU is an ETF that invests in companies in the utilities sector of the S&P 500, investing in a broad range of U.S. utility companies, including electric, gas, and water utilities.
• feature: Characterized by high dividend yields and stable performance, it is suitable for investors who wish to concentrate their investments in low-risk sectors. High liquidity and relatively low fees are also attractive.
• dividend yield: 2.92%

XLU real-time stock price chart

VPU (Vanguard U.S. Utilities Sector ETF)

• summary: VPU is an ETF that invests broadly across the entire U.S. utilities sector.
• feature: Offers broad diversification at low cost and stable returns for long-term investors. It also has very low operating costs.
• dividend yield: 2.98%

Real-time stock price chart of VPU

PUI (Invesco Dorsey Wright Utilities Momentum ETF)

• summary: PUI is an ETF that invests in companies with high relative strength (momentum) in the U.S. utilities sector.
• feature: The fund employs a momentum investment strategy and pursues growth potential by concentrating its investments in companies that are performing relatively well. However, the risk is higher than other utility ETFs.
• dividend yield: 2.17%

Real-time stock price chart of PUI

Which ETFs are promising in the technology sector with high interest rate benefits?

QQQ (Invesco QQQ Trust)

• summary: QQQQ is an ETF that tracks the Nasdaq-100 Index and invests in large-cap stocks in the technology sector, particularly major companies like Apple, Microsoft and Amazon.
• feature: An ETF that invests in a broad range of high-growth, high-tech companies and is directly influenced by the performance of the technology sector; its high liquidity and relatively low trading costs make it popular with both short- and long-term investors.
• dividend yield:0.56%

QQQ's real-time stock price chart

XLK (Technology Select Sector SPDR Fund)

• summary: XLK is an ETF that invests in companies in the technology sector of the S&P 500, which includes many major U.S. technology companies such as Apple, Microsoft and NVIDIA.
• featureETFs: ETFs that directly reflect industry growth because they specialize in technology companies; low management costs and the ability to invest in a broad range of technology stocks provide risk diversification.
• dividend yield:0.68%

XLK's real-time stock price chart

VGT (Vanguard U.S. Information Technology Sector ETF)

• summary: VGT is an ETF that invests in the U.S. information technology sector and is composed of stocks from the S&P 500's Information Technology sector, which includes stocks such as Apple, Microsoft and Visa.
• feature: Features diversification across a broad range of technology companies and low management costs. Suitable for investors who expect long-term growth.
• dividend yield:0.65%

VGT's real-time stock price chart

IYW (iShares U.S. Technology ETF)

• summary: IYW is an ETF that invests in leading U.S. technology companies, with an emphasis on technology leaders such as Microsoft, Apple and NVIDIA.
• feature: Similar structure to VGT, but with a more concentrated portfolio and an emphasis on companies with high growth potential. Slightly higher risk, but potentially higher returns.
• dividend yield:0.21%

IYW's real-time stock price chart

Which ETFs are promising in the consumer goods sector with high interest rate benefits?

XLP (Living Essentials Select Sector SPDR Fund)

• summary: XLP is an ETF that invests in companies in the consumer goods sector of the S&P 500, primarily companies that provide daily necessities, such as P&G, Coca-Cola, and PepsiCo.
• feature: XLP is suitable for investors looking for low-risk, stable returns, as it invests in the necessities sector, where demand is expected to remain stable regardless of economic conditions. The dividend yield is also high, making it a good defensive investment.
• dividend yield:2.63%

XLP's real-time stock price chart

VDC (Vanguard U.S. Living Essentials Sector ETF)

• summary: VDC is an ETF that invests in the entire U.S. consumer goods sector, similar in structure to XLP but with an even broader range of companies.
• feature: Low cost, broadly diversified, and suitable for long-term investment. Focuses on companies that provide products closely related to daily life, such as food, beverages, and household products.
• dividend yield:2.41%

VDC's real-time stock price chart

PSL (Invesco Dorsey Wright Essentials of Life Momentum ETF)

• summary: PSL is a dynamically structured consumer staples sector ETF that invests primarily in the daily necessities sector. The portfolio is regularly rebalanced and concentrated in companies with growth potential.
• feature: The company aims to achieve high returns by concentrating its investments in companies with high growth potential in the consumer goods sector. The risk is a little higher, but the return potential is also high.
• dividend yield:0.94%

Real-time stock price chart of PSL

FSTA (Fidelity MSCI Consumer Staples Index)

• summary: FSTA is an ETF linked to the MSCI USA IMI Consumer Staples Index and invests broadly in the U.S. consumer goods sector.
• featureFidelity's low-cost strategy stands out, although it competes with similar ETFs from Vanguard and iShares.
• dividend yield:2.41%

FSTA's real-time stock price chart