The Shift from Interest Rates to a Tailwind

The most important theme for next year is the shift from interest rates being the problem to a tailwind. The market is predicting that the Federal Reserve may cut rates sooner than expected, and if inflation remains soft and economic activity slows down, it could prompt the Fed to take action. This shift is expected to benefit cyclical sectors such as small caps, mid caps, and international stocks, as well as value stocks, which have been lagging behind. Tech stocks, particularly the Magnificent Seven, may continue to perform well, but most of the returns may already be priced in by the time the first rate cut occurs.