Dj Evercore Appoints Ashish Varshneya As Senior Managing Director In Healthcare Investment Banking Group >Evr

By Spencer Jakab

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Casual fans know who won the game, but usually not the exciting play-by-play. For those who weren't glued to CNBC last month, the exciting sport of Federal Reserve forecasting saw a comeback: The heavily favored Doves (those supporting rate cuts) were down by three touchdowns, but have now taken a decisive lead over the Hawks.

Futures trades logged by CME FedWatch put the odds of a cut next week above 90% in late October, but as low as 30% by Nov. 19. That probability ended the month almost back where it started, helping technology stocks rebound.

The S&P 500 moved into positive territory for November during the holiday-shortened trading session after Thanksgiving, notching a seven-month win streak.

Even casual market watchers know there's a connection between those popular stocks and interest rates. A cutting cycle can be particularly bullish for long-duration assets.

That describes companies with a high valuation now, based on the possibility of lots of profits in the future-and the risk of maybe no earnings at all. A dollar you'll get a decade from now is worth less than one today because of the time value of money.

And because the size of that discount depends on interest rates, long-duration assets are especially vulnerable to rate moves. It's the same reason a long-term bond's price gyrates so much more than short-term ones when interest-rate forecasts shift.

Unfortunately, stock investing isn't as straightforward as bonds. If a genie gave a trader the ability to know what the Fed would do in the future, he or she would only profit some of the time. For example, an aggressive series of rate cuts starting in January 2001 saw tech stocks keep falling. The same thing happened in 2007.

By contrast, "insurance cuts," like the ones in 1995, 2019 and last year, poured fuel on the tech-stock fire each time. None were followed by recessions (ignoring the short, sharp contraction when Covid-19 hit).

Unless your genie can also forecast the economic cycle, there might be a sounder way for stock investors to prepare for more rate cuts. The surprising answer is some of the dowdiest investments, according to strategists at Evercore ISI: consumer stocks, covering companies that offer both staples and discretionary goods.

Before the start, or re-start, of a rate-cutting cycle, they tend to be laggards. This year is no different. Sub-indexes of consumer stocks in the S&P 500 have trailed tech stocks by about 20 percentage points apiece so far this year. But they tend to beat tech in the following 12 months.

Will history repeat? Widespread gloom about low-income consumers, AI euphoria and a hefty valuation discount to tech stocks might make them interesting right about now.

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