Here’s all of Wall Street’s best investing advice now that the Fed’s rate-cut cycle has begun

Fed officials opted to resume the Fed’s rate-cutting cycle, voting to trim the benchmark rate by 25 basis points.

While the move was long-expected by investors and was met with a mostly neutral reaction in the market, Wall Street forecasters are upbeat about what looser monetary policy means for stocks.

Reasoning: “SMID caps are finally catching a bid amid optimism over impending Fed cuts and some evidence of a long-awaited profits rebound,” BofA strategists wrote in a note just before the Fed’s rate-cut decision last Wednesday, adding that they believe many stocks in the sector are still in the “penalty box” and trading at historically low valuations.

“Stock picking has been key with small/SMID indices in ranges since ’21. An optimistic technical setup is emerging that could support SMIDs broadly,” strategists added.

Reasoning: Tech, consumer discretionary, and high-growth stocks have historically outperformed the broader market when the Fed jumpstarts its rate-cutting cycle while the economy has continued to grow.

“Among factors, high-growth stocks have been the most consistent outperformers, followed by high volatility and weak balance sheet stocks,” strategists wrote in a note on Friday.

The bank also recommended firms with high floating-rate debt, meaning that their borrowing costs should come down as the Fed lowers interest rates.

Goldman’s basket of companies with high levels of floating-rate debt has outperformed the Samp;P 500 by nine percentage points since the start of August, the bank said.

Reasoning: Cyclical stocks tend to outperform defensives within one to three months of the Fed resuming its rate-cutting cycle, JPMorgan strategists wrote.

Emerging market stocks have also historically performed “better” as the Fed restarted rate cuts, strategists said, partly because rate cuts can weigh on the value of the US dollar relative to other currencies around the world. Other emerging market central banks are also easing monetary policy, which adds to the bull case.

Reasoning: On the growth side, the bank has “confidence in the magnitude and duration” of the AI boom, which should support large-cap growth stocks in the US, Citi strategists wrote in a note on Friday.

On the cyclical side, the bank also thinks the strength of the economy will improve and that the US is headed for a soft landing. That should provide a boost to cyclical areas of the market, like value stocks and small- to mid-cap stocks, as earnings-per-share growth is poised to broaden out across the market, strategists said.

Reasoning: “We expect the sector to enjoy tailwinds from increased demand from ongoing fiscal spending, attempts to reshore manufacturing, and significant data-center expansion fueled in large part by increased digitization and artificial intelligence. Additionally, our outlook on the economy and tariffs has improved,” Wells Fargo’s global investment strategy team wrote in a note last week.