Global Equity Market Momentum Amid the Fed's 2025 Rate-Cut Cycle: Re-Rating Growth Assets and Currency Dynamics

The Federal Reserve's 2025 rate-cut cycle has ignited a seismic shift in global financial markets, reshaping equity valuations and currency dynamics. With the first 25-basis-point reduction in September 2025, the Fed signaled a pivot from tightening to accommodative policy, sparking a re-rating of growth assets and a reconfiguration of capital flows. This analysis explores how these developments are influencing equity market momentum, with a focus on sectoral reallocations and the dollar's waning dominance.

Re-Rating Growth Assets: From Tech Dominance to Cyclical Rebalancing

The Fed's rate cuts have catalyzed a re-rating of growth assets, particularly in technology and healthcare. Lower discount rates have elevated the present value of future earnings, making long-duration assets more attractive. According to a report by iShares, large-cap growth stocks—especially in AI-driven tech and biotech—are prime beneficiaries of this environmentWhat Fed rate cuts may mean for portfolios | iShares^[1]. For instance, UnitedHealth Group and Eli Lilly have seen renewed investor interest due to their robust cash flows and defensive characteristicsThe Great Rebalancing: Equity Markets Pivot from Tech Giants to Value and Cyclical Stocks^[2].

However, the narrative is evolving. The equity market is witnessing a "Great Rebalancing," as described by Financial Content, with capital shifting from overvalued mega-cap tech stocks to value and cyclical sectorsFed Cuts Rates for First Time This Year - The New York Times^[3]. This shift is driven by concerns over stretched valuations in tech, where price-to-earnings ratios remain elevated despite slowing growth. Cyclical sectors like industrials and consumer discretionary are gaining traction as lower borrowing costs stimulate demand and corporate spendingThe Fed's 0.25% Cut: Reshaping Equity Portfolios Amidst Economic Reassessment^[4].

Smaller-cap technology and healthcare firms are also benefiting. With access to cheaper capital, these companies are accelerating innovation and expansion. A J.P. Morgan analysis highlights that private equity investors are prioritizing firms with strong cash flow and sustainable revenue growth, aligning with the Rule of 40 valuation benchmarkInvesting to Win in a Shifting Technology Market^[5]. This trend underscores a broader market preference for profitability alongside growth.

Currency Dynamics: The Dollar's Decline and Global Reallocations

The U.S. dollar's depreciation has been one of the most striking outcomes of the Fed's rate cuts. By September 2025, the DXY had fallen 10.7% year-to-date, marking its worst performance for the period in over five decadesDollar's Retreat Accelerates Amid Aggressive Fed Rate Cut Bets^[6]. This decline is attributed to dovish Fed signals, weaker U.S. growth forecasts, and a global reallocation of capital toward higher-yielding assets.

Emerging markets have emerged as key beneficiaries. A weaker dollar eases external debt burdens and attracts inflows into equities and local currencies. Morgan Stanley notes that countries like India and Brazil have seen capital inflows surge, with their equities outperforming developed marketsDevaluation of the U.S. Dollar 2025 | Morgan Stanley^[7]. The euro and British pound are also gaining strength, with J.P. Morgan forecasting EUR/USD to reach 1.22 and GBP/USD to hit 1.39 by mid-2026Will the Dollar Regain its Strength? | J.P. Morgan Research^[8].

The dollar's weakening has broader implications. For the U.S., it boosts export competitiveness but risks inflation from pricier imports. Conversely, multinational corporations face margin pressures as overseas earnings lose value in dollar terms. Emerging markets, however, are leveraging the greenback's decline to attract foreign direct investment and stabilize their economiesGlobal Financial Earthquake: How the US Fed's Rate Cut Reshapes International Markets^[9].

Interplay and Future Outlook

The interplay between re-rating growth assets and currency dynamics is reshaping global equity momentum. As the Fed projects two more rate cuts in 2025, markets are pricing in further dollar weakness and accommodative conditions. This environment favors sectors with exposure to economic cycles and international trade, while financials face headwinds from compressed net interest marginsFed Rate Decision September 2025: Impact of Rate Cuts on Global Markets^[10].

Looking ahead, investors must navigate a dual challenge: capitalizing on growth re-ratings while hedging against currency volatility. The Fed's forward guidance—suggesting a terminal rate of 3.5%–3.75% by year-end—provides clarity but also underscores the need for agility in portfolio managementFederal Reserve lowers interest rates by 0.25 percentage points in September 2025^[11].