MW The Fed's cutting while the economy's growing: Buy more stocks, hold less cash, this bank says

By Steve Goldstein

Fed cuts often are good for the equal-weight S&P 500, says SocGen

It's time to get your wallet out and put more money into the stock market, one bank says.

Happy Fed day on what, despite the turbulence, has been a pretty impressive year for investors.

Strategists at Societe Generale point out that none of the 28 major asset classes in the multi-asset portfolio they recommend, from European government bonds to gold, are negative this year. And the good times, they say, will continue, because the Federal Reserve is cutting rates in a non-recessionary environment.

They say they like risky assets, but also recommend broadening portfolios. The two big shifts - more stocks, less cash. They bring their recommended global asset allocation to stocks to 50% from 44%, while cutting cash to 5% from 10%. (That last 1% change is a slight downward shift out of bonds, to 35%.)

"History shows that a more dovish Fed clearly boosts global equities, and not just U.S. equities," said the strategists. "Although we are currently seeing the end of growth exceptionalism, as shown by the U.S. employment market, corporate earnings remain resilient, obviously helped by the AI ecosystem's exceptionalism and a strengthening profit cycle outside the tech sector."

They add that equities tend to re-rate - that is, having better price-to-earnings multiples - with Fed cuts when leverage is fairly low in the private sector. With global fiscal spending on the rise and a duplication of supply chains, earnings per share (EPS) should continue to grow. "This backdrop of higher nominal EPS with scope for the Fed to cut rates to a 'new normal', could keep any sell-offs in the S&P 500 shallow and drive the index to new highs," they say.

To play a broadening of gains, they recommend the S&P 500 equal weight XX:SP500EW as well as their own basket of small-cap "ex junk" companies (which screen out loss-making companies as well as those with weak balance sheets). They're hardly bearish on the plain-vanilla versions of the major stock-market indexes: they say the S&P 500 SPX will reach 7,300 by the first half of 2026.

They're also enthusiastic about stocks outside the U.S. - doubling their weight toward Japanese stocks, while keeping a solid weighting in Europe and slightly increasing their weight toward emerging-market stocks. The strategists highlight new fiscal dynamics in Germany, a new price regime in Japan and another stage of the bull market for China. They also speak of a renaissance for Europe, not just because of the German spending but also the outperformance of the so-called periphery nations like Italy and Spain.

The markets

A predictable holding pattern ahead of the Fed decision, with U.S. stock futures (ES00) (NQ00) languishing and gold (GC00) sliding.

   Key asset performance                                                Last       5d     1m      YTD      1y 
   S&P 500                                                              6606.76    1.14%  3.30%   12.33%   17.59% 
   Nasdaq Composite                                                     22,333.96  2.05%  5.48%   15.66%   27.09% 
   10-year Treasury                                                     4.019      -3.40  -28.00  -55.70   31.40 
   Gold                                                                 3704.6     1.11%  10.29%  40.36%   42.68% 
   Oil                                                                  64.08      2.09%  3.35%   -10.84%  -9.91% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

The Fed decision - and importantly, the dot plot of interest-rate projections - is coming at 2 p.m., followed by Chair Jerome Powell's press conference at 2:30 p.m. Expectations are for a quarter-point reduction and a forecast implying one more rate cut this year.

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The chart

Kevin Muir, the former trader turned blogger for The Macro Tourist, is taking the stance that the expected rate reduction from the Fed later on Wednesday will be the fourth cut of a cycle that started last year, rather than the first cut of a new cycle. He shows here how the S&P 500 is on a typical path - briefly interrupted by tariffs - for rate reductions outside of recessions. The two-year note, the 30-year bond BX:TMUBMUSD30Y and the Russell 2000 RUT also are on non-recession paths. "What worries me the most is the possibility that the economy has weakened materially and the FOMC is cutting because the economy actually needs it. If that's the case, then stock market bulls better hope we aren't about to get a lot of cuts. That path is not pretty for risk assets," he says.

Top tickers

Here were the top stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   NIO     Nio 
   OPEN    Opendoor Technologies 
   PLTR    Palantir Technologies 
   BABA    Alibaba 
   AAPL    Apple 
   ORCL    Oracle 
   TSM     Taiwan Semiconductor Manufacturing 

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-Steve Goldstein

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September 17, 2025 06:49 ET (10:49 GMT)

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