What history has taught us about Fed rate cuts: 1) Cash underperforms. 2) For the past 40 years, investing after a rate cut when the S&P 500 was near all-time highs didn’t matter—the market was higher a year later. 3) For stocks and bonds, what mattered was why the Fed was cutting and today, the economy does not face an imminent emergency. 4) Historically, the rest of the world’s equities love a soft landing.

Fed Chair Jerome Powell said recalibrate nine times in his September press conference. The goal: keeping the economy as it already is—strong. We expect two more 25 basis point (bps) this year (but 50bps in November would not be surprising). We turn more optimistic on U.S. high yield credit, expecting mid-single-digit total returns for both investment grade and high yield bonds over the next 12 months.

Across seven valuation metrics, the index is the most expensive since the turn of the century. The market has pulled forward gains we expected in 2025 into 2024; we increase our mid-2025 S&P 500 outlook to 5,925 with mid-single-digit total returns. In the search for alpha, look to the sector level and consider income orientated strategies and structured notes for those clients/investors that qualify.

We turn more optimistic on the utility sector. Much like infrastructure and industrials, we believe utilities stand to benefit significantly from grid expansion and modernization—a growth story! Further, as interest rates decline, utility stocks’ dividend yields (around 3%) can become even more appealing.

A slew of policy announcements offers meaningful support to a struggling Chinese economy. We turn tactically more positive on Chinese equities, although Chinese firms’ earnings will still generally not accrue to global investors. That makes it hard to consider Chinese stocks a long-term investment strategy.