1. The shift in monetary policy lays the foundation for long-term market gains

The Federal Reserve has lowered the federal funds rate target range by 25 basis points to 4.00%-4.25%, marking the first rate cut since December 2024 and signaling the formal end of tightening policies. More importantly, the Federal Reserve has clearly indicated that there will be two more rate cuts within the year, suggesting that interest rates will further decline to around 3.5%. The rate cut policy promotes fundamental recovery by improving financial conditions, with rate cut expectations driving down interest rates, leading to a rebound in U.S. stocks and improved financial conditions and economic data. Historical experience shows that each round of rate cut cycles brings significant liquidity improvements and valuation re-evaluation opportunities to capital markets.

2. Expectations of a soft economic landing enhance investor confidence

The current rate cut context is starkly different from previous economic recession periods characterized by emergency rate cuts, instead reflecting the Federal Reserve's precise control ability over a soft economic landing. In August, U.S. consumer prices rose 2.9% year-on-year, although it returned to the highest level since the beginning of the year, it remains within a controllable range. The Federal Reserve's proactive rate cut in the context of controllable inflation demonstrates a forward-looking judgment on future economic trends. Today's rate cut is a 'risk mitigation' measure; the 25 basis points cut is behind a slowing economic growth and increasing employment risks, and this preemptive policy adjustment helps avoid the risk of a hard economic landing.

3. A wave of global liquidity easing is about to sweep in

The Federal Reserve's interest rate cut decision will trigger a chain reaction among global central banks, creating a global liquidity easing environment. When the Federal Reserve adopts an aggressive rate cut strategy, global stock markets will benefit broadly due to an influx of liquidity. Not only will developed economies like Europe and Japan, which are highly correlated with U.S. stock market trends, benefit, but emerging markets will also encounter a golden opportunity for capital inflows. Some global major asset prices have already reacted in advance, with U.S. Treasury yields falling, gold prices rising, and emerging market assets possibly welcoming capital inflows. This improvement in global liquidity will provide strong upward momentum for various risk assets.

4. Interest rate-sensitive sectors welcome a golden investment window

The rate cut cycle has a direct positive impact on interest rate-sensitive industries. Historical data shows that during 'preemptive rate cut' cycles, U.S. stocks, especially interest rate-sensitive technology growth sectors and small-cap stocks, outperform. Traditional interest rate-sensitive industries such as real estate, utilities, and REITs will directly benefit from lower financing costs. Meanwhile, the high valuation pressure on technology growth stocks will be alleviated, laying the groundwork for a new round of technology stock bull markets. The rate cut policy ultimately drives economic stabilization and recovery, creating a favorable environment for profit improvement across industries.

5. The upward trend in commodity prices has been established

The weakening of the dollar and the improvement in global liquidity will drive commodity prices into an upward channel. Since 2000, Federal Reserve rate cuts have often been accompanied by a surge in gold prices driven by market risk aversion. In the current context of heightened geopolitical risks, gold's value as a safe-haven asset will be further highlighted. Energy commodities like crude oil will also benefit from improved global economic expectations and anticipated dollar depreciation. This round of the commodity price increase cycle may be more lasting and robust than the market expects.

Summary

The Federal Reserve's recent rate cut and its indication of two more cuts within the year signify that global financial markets are entering a brand new upward cycle. Historically, each round of rate cut cycles has brought substantial return opportunities for investors. The current rate cut is not only a preemptive response to economic downside risks but also paves the way for future economic growth and asset price increases.

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