Tech giants' slowdown is expected to help the Fed cut interest rates, experts say
Walter Todd, the investment director at Greenwood Capital, said factors driving the record closing highs last week and Friday could be the start of a rally that is not limited to the tech heavyweights. Some investors worry that this rally could be similar to the one at the end of last year, where it was only a short-lived rally for some speculators to buy high and sell low. However, Matthew McAleer, president of Cumberland Advisors, thinks this time could be different because of the Fed easing effect. Futures data on Friday showed traders now see a 90% chance of a Fed rate cut in September.
McAleer noted that small and mid-cap companies rely heavily on leverage to expand their business, and the positive impact of rate cuts on their cost of capital is obvious, so they are definitely the biggest beneficiaries of a Fed rate cut. For blue chips, a rate cut will inevitably lead to a decline in the yield on the US long bond, and analysts will recalculate their fair value for blue chips, leading to a corresponding rise in the stock price, making it more attractive to investors.