Cyclical Stocks Propel Rally Amid Global Rate Cuts: Is It Too Late to Invest?

US stocks surged last week, driven by easing policies. The Federal Reserve cut interest rates by 50 basis points last Wednesday, its first reduction in four years. On Tuesday, China's central bank announced significant rate cuts and several financial support measures.

Utilities emerged as the second-best performing sector in the S&P 500 as of Wednesday's close, boasting a 26% increase for 2024, trailing only the information technology sector.

Utilities are perceived as a "safe" investment, offering high dividend yields that become appealing in a rate-cut environment, outperforming bond yields. The sector also benefits from advancements in artificial intelligence and digital currencies like Bitcoin, which drive energy demand, particularly for electricity.

A significant driver for the utilities sector this year is the soaring electricity demand from AI-related data centers. Goldman Sachs notes that data centers are poised to become the largest growth driver of U.S. electricity demand, with consumption expected to rise from 3% to 8% by 2030.

The uranium mining sector surged after Microsoft and Constellation announced a record power purchase agreement. Constellation, the largest clean carbon-free energy producer in the U.S., plans to invest $1.6 billion to restart a nuclear plant closed since 2009, targeting a 2028 reactivation. Microsoft will buy energy from the plant for 20 years to power its PJM data centers with carbon-free energy. Constellation’s shares jumped 22%, boosting other uranium and nuclear stocks.

China's recent announcement of a series of policies to boost the economy and real estate market has spurred global demand for raw materials, driving U.S. metals and mining stocks to their strongest single-day surge since 2024 on Tuesday.

When economic outlook improves, demand and prices for industrially-utilized metals like copper and silver rise, lifting related mining stocks. Copper, primarily used in electricity, home appliances, construction, and new energy vehicles, typically sees robust demand from late September to December.

Chinese automakers and e-commerce stocks, many of which are U.S.-listed, have surged due to the Federal Reserve's rate cut bolstering market risk appetite and a slew of supportive policies from China. Additionally, the appreciation of the yuan and the long-term undervaluation of Chinese assets could be key drivers for increased inflows from overseas investors.