Upcoming U.S. interest rate cuts are challenging investors to decide between sticking with Big Tech stocks or exploring less favored market sectors that may benefit from easing monetary policy. Massive tech companies like Nvidia, Microsoft, and Amazon have yielded significant returns since early 2023, despite concerns of a potential bubble.
A recent cool inflation report has heightened expectations for a Federal Reserve rate cut, potentially benefiting sectors like small-caps, real estate, and industrials. This shift was evident as the Nasdaq 100 saw its largest drop this year, while the small-cap Russell 2000 had its best day of 2024. The Nasdaq 100 has risen about 21% this year, compared to the Russell 2000’s 6%.
Investor sentiment remains cautious due to previous short-lived market broadening. However, there is optimism as lower rates could make equity valuations more attractive, especially for smaller companies reliant on credit. Despite this, Big Tech remains appealing due to their resilience and centrality to the AI theme, which continues to captivate investors.