Sector Performance and Rate Cuts
Published: August 6, 2025
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Markets are pricing in a handful of rate cuts for the rest of 2025. What does this mean for your portfolio?

Rate cuts may soon be on the horizon. Last week’s poor jobs report spurred markets on the idea that the economy might not be as resilient as hoped… seeing numbers come in below expectations. Somewhat significant downward revisions of months prior built on this idea. With that said, estimates of a rate cut during next month’s Fed meeting jumped notably, sitting at roughly 93% at the time of this writing on 8/6. Markets are also pricing in a handful of additional rate cuts before the end of the year.

Rate cuts can be largely dependent on messaging and overall language around why said cut occurred. On one hand, cheaper capital is a tailwind for markets as high growth firms can fund projects at a lower rate. On the other, there is typically a reason that rate cuts typically occur… because overall economic growth is stalling out. Again, investor reception to cuts can be largely dependent on the broader state of the economy, but for now it appears as if possible rate cuts in 2025 is more a sign that the fed is confident that inflation is under control, giving them the flexibility to take monetary action as needed. This could certainly change as the year continues. 

Finance 101 taught us that as rates go down, outstanding fixed income goes up. This relationship is somewhat easy to digest, but your clients will certainly be interested in how else their portfolio is positioned in the event of rate cuts later on in the year. From a sector perspective, rate-sensitive sectors like real estate are the main benefactors when rates fall. Higher growth areas like technology can also benefit as innovative projects are easier to finance through debt issuance. The table below details performance following rate cuts since 1995. Utilities, Communication Services & Financials are points of weakness… at least when it comes to averages.

Lower rates are also a tailwind for some more defensive minded groups, mainly dividend payers and precious metals. This makes sense… imagine you own a hypothetical low-volatility asset paying you 4% a year in dividends. This 4% is going to be comparatively more lucrative when a riskless US government bond is paying you less, not more. The same is true for precious metals which pay you no dividends as they sit under your mattress.

Wherever you are looking, potential rate cuts present a golden opportunity to check in with your clients to discuss how they are positioned as we move through the third quarter of the year. Many of you will have a watchlist (portfolio) of your clients’ holdings loaded into the NDW system. (For those that don’t, check out how to create one here) From there, you can use the evaluate tool (pictured below) to highlight some valuable insights across the watchlist, including TA score distribution, sector distribution and more. From there, identifying weak/replaceable names is easy. Simply trim/cut exposure to low attribute stocks and funds within your portfolio in favor of stronger available options.

The platform also has easy access to replacement idea generation. The buy lists provide high relative strength names across various sectors and asset classes. For those of you looking for other ways to source replacement options, you can utilize the “other ideas” tab for any stock on its respective PnF chart which provides actionable names within a similar sector as the name searched. For those of you looking for something more “analyst curated” you could use the Daily Equity Roster as a starting point (updated daily by the research team) or utilize one of the premade screens via the security screener. For instance, the “Technically Actionable Dividend Payers” screen below reveals a list of 16 high attribute stocks that have a dividend yield >3%. Remember, dividend payments when rates are lower are comparatively more significant, so adding tactical exposure to those areas for more defensive minded clients can be helpful.

 

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DISCLOSURE

This report is for Internal Use Only and not for distribution to the public. While we make every effort to be free of errors in this report, it contains data obtained from other sources. We believe these sources to be reliable, but we cannot guarantee their accuracy. Investors who use options should read the Options Disclosure Document before making any particular investment decision. Officers or employees of this firm may now or in the future have a position in the stocks mentioned in this report. Dorsey, Wright is a Registered Investment Advisor with the U.S. Securities & Exchange Commission. Copies of Form ADV Part II are available upon request.
Equity prices provided by Thomson-Reuters. Cross Rate prices provided by Tenfore Systems. Option prices provided by OPRA
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