The arrival of "Black Monday" has triggered market concerns about the US economic recession. The Bank of Japan's interest rate hike has triggered violent shocks in global financial markets. Japanese and US stocks first fell sharply and then rebounded dramatically. The market is expected to have not yet bottomed out. The Bitcoin panic index in the crypto market soared by nearly 70%, and stock markets in many countries have been circuit-breakers several times. Even European and emerging market stock markets have also suffered a significant blow. Under huge market pressure, people began to seek a good way to alleviate the situation, and many parties called on the Fed to cut interest rates to save the market.

As the uncertainty and volatility of the global economic outlook increase, financial markets have speculated on the possibility of an emergency rate cut by the Fed. According to statistics, the Fed has implemented nine emergency rate cuts since 1987. On August 6, Bank of America analyst Michael Gapen released a report reviewing the history of the Fed's interest rate cuts, and said that the conditions for inter-meeting rate cuts in history were extremely harsh and occurred when they were truly in an emergency, such as a systemic economic crisis, a large-scale asset bubble burst, and major geopolitical conflicts. In contrast, the current economic and market conditions have not yet reached the threshold for emergency rate cuts in history.

However, regardless of whether the Fed takes emergency rate cuts, the Fed's resolution and Powell's press conference both hinted that there is a high possibility of a rate cut in September this year. "New Fed Megaphone" analyzed that the Fed's statement deleted the wording of "high attention" to inflation risks in the past two years. This shift is significant, indicating that inflation may no longer be an obstacle to rate cuts, especially as the labor market continues to cool.

Health care industry

According to statistics, three months after the Fed's first rate cut in eight rate cut cycles in 1984, the industry return rate of the health care industry was 16.8%, the industry return rate in the next six months was 26.1%, and the industry return rate in the next twelve months was 35.0%. The remarkable results show that health care has performed best throughout the rate cut cycle. One of the main reasons for its standing out is its defensive stock attributes. The market demand for the health care industry is sticky and does not depend on the economic cycle.

In addition, many medical stocks are dividend stocks and are also known for huge stock buybacks, which makes medical stocks very attractive during economic weakness.

Utility stocks

Over the past two years, the market's continued concerns about inflation have pushed the Federal Reserve to keep interest rates at a relatively high level after consecutive rate hikes. According to data provided by FactSet, during this period, the average total return of utility stocks was only 3.4%, and this return level did not even exceed the dividend income of Treasury bonds during the same period, thus putting significant pressure on utility stocks that rely on stable dividend income.

As concerns about a US recession continue to grow, the market generally expects the Federal Reserve to cut interest rates in September, causing the yield on 10-year Treasury bonds to fall to about 3.8%. This change makes the dividend income of utility stocks relatively more attractive, providing investors with an alternative investment option in a low-interest environment.

Recent trading data shows that utility stocks have shown a trend of rising against the backdrop of a general decline in US chip stocks. In addition, the surge in electricity demand brought about by the rapid development of artificial intelligence technology has also provided momentum for the growth of US utility stocks. More importantly, compared with those expensive technology giants such as Nvidia, Microsoft and Google, investors now have the opportunity to enter the public utility sector at a relatively low cost, thereby participating in the artificial intelligence technology revolution, which undoubtedly provides new opportunities for investors seeking value investment.

Consumer staples industry

The consumer staples industry has defensive attributes, and interest rate cuts will make it more popular with investors. First, interest rate cuts reduce the financing costs of enterprises and consumers, which reduces the financial burden of enterprises in the production and operation process, thereby potentially increasing their profit margins. Secondly, a lower interest rate environment can stimulate consumption because consumers have a relatively increased disposable income, which means stable or even growing demand for consumer staples companies that provide basic necessities such as food and beverages.

At the same time, if the US dollar depreciates due to interest rate cuts, it may increase the price of goods exported to the United States, but this may also attract foreign investors to invest in their own consumer staples industry because these industries usually provide stable returns in economic fluctuations. The consumer staples industry can become a safe haven for investors seeking safe investments during economic uncertainty due to the stability of demand for its products.

Why does the Fed's interest rate cut have a huge impact on the market?

The US dollar is the world's main reserve currency, and most international trade and financial transactions are denominated in US dollars. Therefore, changes in the Fed's monetary policy and interest rate policy will directly affect the global financial market and economy. The Fed's interest rate policy has a direct impact on the interest rate level of the global financial market. The different effects of interest rate hikes and interest rate cuts are as follows:

• Fed interest rate hikes: means raising the cost of borrowing between banks, thereby raising the loan interest rates of commercial banks to enterprises and individuals. When the Fed raises interest rates, the deposit interest rate of the US dollar rises, and depositors receive higher interest income, resulting in capital inflows into the United States, reducing investment in other countries, worsening the economic environment, and rising unemployment. High interest rates also increase borrowing costs, leading to an increase in the risk of corporate and individual defaults, which may trigger corporate bankruptcy.
• Fed rate cuts: means lower deposit rates and borrowing costs: When the Fed cuts interest rates, the US dollar deposit interest rate falls, capital flows out of banks and flows to other countries, promoting global investment and economic recovery.

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