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Does the conventional wisdom about winning cyclicals always play out ? By Dave Sheaff Gilreath

S ADVISORS ANTICIPATE THE IMPACT OF THE new fed rate-cut cycle on client portfolios , the conventional wisdom is that cyclical stocks — things like automotive , airlines and consumer goods names — will benefit the most .

While a lot of historical data suggests this could happen , advisors who focus on it too much may miss opportunities , since the data also suggests that less obvious parts of the market may fare better .

Unlike most first cuts made in a cycle , the 50-basis-point cut announced by the central bank in September didn ’ t come in a sluggish or recessionary economic environment . Actually , it came amid a particularly resilient economy that , while slowing somewhat , is still growing .

Hootie & The Blowfish

According to Forbes , the last time the Fed cut rates in a growing economy was 1995 , a year when the S & P 500 was net positive and tech stocks were mustering before their rapid ascent in the late ’ 90s .

The rate-cutting cycle that began in July of 1995 came as more affordable personal computers proliferated in households and the band Hootie & the Blowfish rose to success .

Contrary to what many advisors believe today , the 1995 ratecutting cycle didn ’ t resuscitate a dormant trade in cyclicals . While financials did all right after this first cut , most cyclicals declined , while some defensives ascended .

Over the six months after that first 1995 cut , consumer staples outperformed the S & P 500 by 4.9 percentage points . Healthcare did much better , outperforming by 14.8 percentage points .

Some of these gains may have come from siphonedoff tech investments . Despite strong growth in the first half of ’ 95 , tech hit a performance top around the time of the Fed ’ s first cut and then promptly headed downward , remaining contained for about six months .

By the time Hootie & the Blowfish lead singer Darius Rucker switched to country music in 2008 , tech had been leading the market with meteoric growth for more than a decade .

1995 Revisited ?

Outcomes from the 1995 cycle may hold clues to sector performance during and after this new , belated round of rate cuts .

Currently , as in 1995 , the beginning of this cycle roughly coincides with a pause in the upward ascent of the Nasdaq-100 , which underperformed the S & P 500 between July and late September . That , along with improved performance of the equal-weighted S & P 500 , suggests the overall market ’ s performance is broadening away from tech , which is reminiscent of what occurred early in the 1995 cycle .

Also , the new rate-cutting cycle is similar to that of

38 | FINANCIAL ADVISOR MAGAZINE | NOVEMBER 2024 WWW . FA-MAG . COM