To The Moon

CPI is less than expected in September, this pave the way for Fed to cut interest rates in October to boost the job market. Financial markets are pricing near certainty the Fed will cut the fed funds rate to a range of 3.5% to 3.75% by the end of the year, a half a percentage point below its current level.

A softer CPI print and a likely Fed rate cut in October can indeed shift market leadership quickly. So in this article, I think we might want to look at how we can break down clearly, and pivot into ETFs instead.

Macro Context

• CPI below expectations → Inflation cooling.

• Fed likely cutting rates (50 bps by year-end) → Lower borrowing costs, easier liquidity.

• Goal: Support slowing job growth and prevent a recession.

• Market impact: Risk-on sentiment, yield compression, dollar softening.

Sectors Likely to Benefit Most

Tactical ETF Plays

Duration trade (benefit from falling yields):

iShares 20+ Year Treasury Bond ETF (TLT)

Vanguard Extended Duration Treasury ETF (EDV) These rally as bond yields fall post-cut.

“Reflation” rebound basket: Pair growth + cyclicals via QQQ (tech) + XLI (industrials) or XLY (consumer).

Balanced risk-on setup:

40% QQQ / 20% XLY / 20% VNQ / 20% TLT → captures growth, consumer recovery, real estate lift, and bond rally.

Watch Risks

If CPI’s drop is temporary or labor data rebound, the Fed might delay or reduce the magnitude of cuts.

A too-aggressive rate cut could signal recession fears — defensive sectors (Healthcare, Utilities) could outperform temporarily.

Dollar weakening could also spur short-term commodity inflation (Gold, Oil ETFs could benefit).

Optional Add-ons

SPDR Gold Shares (GLD) — Hedge against over-easing or dollar decline.

Invesco DB US Dollar Bearish Fund (UDN) — If expecting a weaker USD trend.

Here’s a visual sensitivity chart showing which sectors and ETFs are likely to benefit most from the expected Fed rate cuts — with “+++” levels indicating stronger positive impact.

• Top beneficiaries: Technology, Long Bonds, Real Estate, and Small-Caps.

• Moderate beneficiaries: Consumer Discretionary, Emerging Markets, Financials, and Gold.

This visualization reflects expected relative performance under a scenario where the Fed cuts rates to 3.5–3.75% by year-end and liquidity conditions improve

Summary

Based on the scenario, a lower-than-expected September CPI report is increasing market certainty that the Federal Reserve will cut interest rates to support the job market, with expectations for a 3.5%-3.75% fed funds rate by year-end.

This dovish pivot from the Fed typically benefits several key areas:

Rate-Sensitive Sectors: Real Estate (REITs) and Utilities are primary beneficiaries. These sectors are often called "bond proxies" because they offer high dividend yields. As interest rates fall, their yields become more attractive compared to declining bond yields, driving investor demand. Lower rates also reduce the significant borrowing costs for real estate companies.

Growth Stocks (Technology): High-growth sectors like Technology see their valuations increase. These companies' values are heavily based on expectations of future earnings. Lower interest rates reduce the "discount rate" used to calculate the present value of those future profits, making them worth more today.

Bonds: The inverse relationship between interest rates and bond prices means that as rates fall, the prices of existing bonds rise.

Investors can use Exchange-Traded Funds (ETFs) to gain exposure to these trends:

Real Estate: $Vanguard Real Estate ETF(VNQ)$ or $Real Estate Select Sector SPDR Fund(XLRE)$

Utilities: $Utilities Select Sector SPDR Fund(XLU)$

Technology/Growth: $Invesco QQQ(QQQ)$ or $Technology Select Sector SPDR Fund(XLK)$

Bonds: To capitalize on rising bond prices, investors often turn to long-duration bond ETFs, which are the most sensitive to rate changes, such as the iShares 20+ Year Treasury Bond ETF (TLT).

Appreciate if you could share your thoughts in the comment section whether you think it would be better to pivot to ETFs instead of old school stocks to take advantage of Fed move benefitting the market.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.