No clear trend to follow - time to diversify!

Rate cuts will make good headlines, alter consumer spending (lower rates mortgages, car loans etc) but doesn't seem to affect the equity markets that much. I looked back to see how 4 vanguard ETFs (Growth, Value, S+P 500, Total US stock market) performed in response to rate changes the past few years.

There is no real consistent trend. The ETFs don't demonstrate any great reactive activity in the long term.

If there was a strong correlation between the Fed rate and the markets, the prices should have followed the trend line to some extent. Instead, the slope of each line operates pretty much independently of the rate curve. Might see some changes in house construction companies (as interest rates hit them both on the loans for them to get raw materials and lower mortgage rates get offset by higher house costs)

The bond market is a different story for sure. But that's a lot of a stretch mathematically. If coupon rates fall, bonds drop in value on the secondary market. If you plan to hold them to maturity, it doesn't really matter. If you are happy with your return at maturation, don't let the bond "value" fluctuations bother you.

NOTE: BUY ALL EE or I BONDS BEFORE NOVEMBER 1ST

The US treasury sets the fixed interest rates for both every May and November 1st. As the above graph shows - we are unlikely to see Fed rates this high again any time soon. Personally, I keep a small percentage in T-Bills and a trivial amount in bonds. I like the liquidity. I recommend going through Treasury Direct to purchase them rather than a broker. For one, you can buy in values of $100s rather than the $1000 minimum brokers require. You can always transfer them into a brokerage if you want to access the secondary market.

Otherwise, I don't think the discussion changes much. The major trends really come down to whether you think we are in an AI bubble or true growth. Personally, I am in the bubble camp. The market is still overvaluing companies at one of the highest rates in history. This is the metric I use to judge that - though I do acknowledge potential value can be priced into share prices before earnings catch up.

I prefer to follow the rule of investing in single shares of industries you personally understand the business model of - otherwise stick to broad low cost index funds. More risk adverse folks could target traditionally more "stable" sectors like energy (where there will be a consistent demand).

I don't like playing trends in the short-term simply because I don't put in the work to research it enough to know what calls to make (e.g. who knows how the renewables vs fossil fuel ratio plays out)

Can't discuss trading patterns without bringing up that old classic growth vs value investing!

Folks have been predicting value to return to the top for a quite a while now. Again, I don't know enough to have an opinion 😂

I do think there are some macroeconomic thought experiments that would be relevant though. Keep in mind that falling rates will *not* play out like a few years ago. The government won't be flooding consumers with extra cash this time around. I believe that had more impact than rates did on the "blitz-scaling" trend. The world also has gotten impatient with AI to live up to the money printing machines they were thought to be. So I am not expecting investors to pour money into AI companies this time around.

In conclusion, I won't be changing all that much. I will shift some of my fixed income portfolio to junk bond funds or consumer debt before the US treasury notes held by MMFs turn over.

I am happy sitting on the sidelines watching the AI scene play out. I don't expect auto manufacturing to see a bump - there might be a slight uptick in sales but that will be offset by the lower amount they make on car loans (which is a huge part of revenue).

I also believe banks are going to be a bit more cautious with their lending as long as daddy FDIC is poking around to avoid anymore bank failures. Venture capital may have lost some luster funding crypto scams, but they are going to keep chugging along with the status quo since they don't have shareholders to worry about.

I personally don't worry about the terms "growth" vs "value" and focus on the bigger picture. The Fed lowers the rate to get consumers to spend more. To me, that says blue chip retail stores with "wants" will be the first to see the extra spending (Walmart, Costco, etc). I don't see people spending more at grocery stores. After inflation pushed folks towards store brands, it's hard to go back to buying name brands knowing there is no difference.

Some folks might argue that hardware stores like Home Depot could see a bump from people starting home repair / renovations they have been "putting off" due to interest rate. But I feel that the rate needs to drop a lot more to see it hit show up in sales. If a homeowner has waited this long, what's a couple more months right?

Finally, a reminder that the ONLY thing that is 100% guaranteed in investing is paying those expense ratios ;) So you can never go wrong with zero basis point index funds!