Tech stocks a tough choice amid looming rate cuts

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NEW YORK CITY — Looming interest rate cuts in the United States are presenting investors with a tough choice: stick with the big tech stocks that have driven returns for more than a year or turn to less-loved areas of the market that could benefit from easing monetary policy.

Owning massive tech and growth companies such as Nvidia, Microsoft and Amazon has been a hugely profitable strategy for investors since early 2023, even as the stocks' market dominance has drawn comparisons to the dot-com bubble of the late 1990s.That calculus may start to change following Thursday's surprisingly cool inflation report, which solidified expectations for a near-term rate cut by the Federal Reserve.

Smaller companies, including biotech firms, that are heavily dependent on credit are among those that stand to benefit most from lower rates, said Matthew McAleer, president and director of private wealth at Cumberland Advisors. Industrial companies, which can rely on debt for capital intensive projects, also could be winners, McAleer said.Equity valuations across the market could also become more attractive if bond yields continue falling as traders price at lower rates.

 

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