1995 when we look at the macro-economic environment . For example , as it is today , the dollar was weak in 1995 ; it gained strength during the cutting cycle .

In the months before the most recent Federal Reserve action , an inverted yield curve unsettled many advisors . But the degree of inversion has diminished significantly and now reflects a more “ normal ” rate spread . The yield curve behaved in similar fashion approaching the first cut in ’ 95 .

But there are differences , of course . The markets of 1995 and 2024 are different creatures , with different investor sentiments ; anyone looking at historical clues for the way sectors will behave in the next year or two should probably look at several rate cycles , not just these two .

Undeniably , some cyclical stock names have done quite well amid the cuts — notably , materials , which has outperformed during the last three cycles .

Increasingly Healthy

But the sector that ’ s emerged as perhaps the most consistent outperformer in these rate periods is healthcare . After outperforming the S & P 500 in 1995 , healthcare did it again in the two-year periods after the Fed started slashing rates in 2001 , 2007 and 2019 .

Though healthcare is a classic defensive sector , it has recently acquired offensive characteristics : It has enjoyed secular growth , its earnings growth is projected to accelerate , and its margins are projected to expand . Though it languished in recent years , it ’ s shown vitality in 2024 , posting solid performance . At the outset of this new Fed cycle in late September , one exchange-traded fund , the Health Care Select Sector SPDR Fund ( XLV ), was up about 19 % for the preceding 12 months .

Though this sector is characteristically impervious to demand declines amid rising unemployment — since insured people will always seek care regardless of their financial situation — the sector can also be a political punching bag because of consumer costs , especially drug prices . Yet , as of early October , the sector had avoided excessive berating by the big presidential campaigns ( though this could change before the election ).

Charging Up

Another defensive sector that may be poised to perform in this new cut cycle is utilities , which has recently received more attention from investors growing aware of artificial intelligence ’ s huge power demands .

Even before “ AI ” was on everyone ’ s lips , data centers were already sucking up increasing amounts of power for myriad rechargeable battery-operated products : electric cars , robotic vacuum cleaners , lawn mowers , cell phones and all manner of other wireless devices . Another ETF , the Utilities Select Sector SPDR Fund ( XLU ), was up more than 30 % for the 12 months ended in late September .

Though the likely overall market impacts of this new rate-cut cycle are probably already baked into equity prices to a large extent , the new ones to come aren ’ t likely to hurt many stocks . After all , the costs of issuing bonds will decline with prevailing interest rates as the Fed continues slicing — probably in 25-basis-point increments .

Given the lower costs of issuing bonds , corporations will have more unencumbered cash to invest in their enterprises and pay off existing bonds , brightening balance sheets .

Future cuts in increments of 25 basis points would be a methodical pace consistent with the months of methodical Fed talk that preceded the first cut .

Though the market has historically favored such small cuts , it has nevertheless welcomed the larger 50-basis-point cut that kicked off the Fed ’ s current round , perhaps because the move was so long in coming .

Barring negative impacts from unexpected exogenous events , the market ’ s welcome wagon for the new cycle will probably continue rolling through 2025 and into 2026 , with sector outcomes less likely to surprise advisors who have taken a close look at market history .

DAVE SHEAFF GILREATH , CFP , is a founder and chief investment officer of Sheaff Brock Investment Advisors , a firm serving individual investors , and Innovative Portfolios , an institutional money management firm . Based in Indianapolis , the firms were managing assets of about $ 1.4 billion as of June 30 .

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NOVEMBER 2024 | FINANCIAL ADVISOR MAGAZINE | 39