The latest market developments present a pivotal moment for advisors as the Federal Reserve resumes its rate-cutting cycle. Last week, policymakers voted to reduce the benchmark federal funds rate by 25 basis points, reintroducing monetary easing after a period of restraint. While the move was broadly anticipated and markets responded without major swings, the implications are far-reaching. For wealth advisors and RIAs guiding client portfolios, understanding how leading Wall Street institutions are positioning in light of easier monetary policy is crucial.
Strategists at the major banks have begun outlining clear areas of opportunity. Though each institution emphasizes different segments, the collective message is that lower rates can serve as a powerful catalyst for select equities. Here is how Bank of America, Goldman Sachs, JPMorgan, Citi, and Wells Fargo are advising investors to recalibrate exposure as the new rate environment takes shape.
Bank of America: Small and Mid-Cap Stocks
Bank of America is urging investors to look closely at small- and mid-cap stocks, where valuations remain compressed despite improving fundamentals. According to its equity strategy team, optimism around Fed rate cuts has finally provided these companies with renewed momentum after years of lagging the broader market.
“SMID caps are finally catching a bid amid optimism over impending Fed cuts and some evidence of a long-awaited profits rebound,” BofA strategists noted. Many of these companies remain stuck in what they describe as the “penalty box,” priced at levels that reflect persistent skepticism from investors rather than underlying performance potential.
The bank believes the setup is compelling. With small- and mid-cap indices trading sideways since 2021, stock selection has been the critical differentiator. Now, BofA argues, technical indicators point to an environment where a broad rebound could materialize. Advisors who have been cautious on SMID exposure may find this to be a favorable entry point.
For RIAs, the implications are twofold. First, small- and mid-cap companies can help diversify portfolios heavily tilted toward mega-cap growth stocks. Second, given historically low valuations, they may offer clients an asymmetric risk-reward profile if profit growth continues to strengthen.
Goldman Sachs: Tech, Consumer Discretionary, High Growth, and Floating-Rate Debt
Goldman Sachs takes a different tack, focusing on areas of the market that have historically thrived when the Fed initiates a rate-cutting cycle during an ongoing economic expansion. Specifically, the firm highlights technology, consumer discretionary, and high-growth companies.
“Among factors, high-growth stocks have been the most consistent outperformers, followed by high volatility and weak balance sheet stocks,” Goldman strategists observed. For advisors, this suggests that clients with higher risk tolerance could benefit from selective exposure to companies that stand to accelerate earnings growth in a low-rate environment.
The firm also emphasizes an underappreciated opportunity: companies with high levels of floating-rate debt. As rates decline, borrowing costs for these firms fall directly, improving profitability and freeing up capital for reinvestment. Goldman has created a basket of such companies, which has already outperformed the S&P 500 by nine percentage points since early August.
For RIAs, this creates two distinct avenues for portfolio positioning: reinforce client allocations to high-growth equities, particularly in technology and discretionary sectors, and identify businesses positioned to benefit directly from reduced interest expense. Both strategies align with the broader thesis of growth-oriented outperformance as monetary easing takes hold.
JPMorgan: Emerging Markets and Cyclicals
JPMorgan places the spotlight on cyclical equities and emerging markets, two areas it believes are primed to gain in the aftermath of Fed rate cuts. Historically, cyclical stocks—those tied most closely to economic growth—tend to outperform defensive sectors within one to three months after the Fed resumes easing.
“Cyclicals should outperform defensives within one to three months of the Fed resuming its rate-cutting cycle,” the bank’s strategists explained. For advisors, this underscores the importance of tilting equity exposure toward sectors like industrials, financials, and consumer discretionary, which have greater sensitivity to growth trends.
Emerging markets also present a compelling case. Lower U.S. interest rates often pressure the dollar, making EM assets relatively more attractive. Additionally, many emerging market central banks are already pursuing their own easing cycles, creating a synchronized global environment supportive of risk assets.
For RIAs seeking to diversify client portfolios, adding EM exposure—particularly in countries with strong policy backdrops—can serve as both a return driver and a hedge against U.S.-centric risk. Combined with a tilt toward cyclicals, this approach can broaden opportunities beyond the familiar large-cap growth leaders that have dominated performance in recent years.
Citi: Barbell Between Growth and Cyclicals
Citi advocates for a barbell approach, blending exposure to large-cap growth stocks with cyclical and value-oriented equities. The strategy rests on two core convictions: the durability of the artificial intelligence boom and the likelihood of a U.S. soft landing.
On the growth side, Citi highlights large-cap technology firms leading the AI revolution. The bank’s strategists expressed “confidence in the magnitude and duration” of this secular trend, arguing that it will continue to drive earnings growth among a concentrated set of U.S. leaders.
At the same time, Citi believes that the resilience of the economy will broaden profit growth across cyclical sectors. With a soft landing now viewed as the base case, earnings per share growth should no longer be confined to mega-cap names. This creates opportunities in value-oriented and small- to mid-cap equities, which may experience multiple expansion as earnings momentum builds.
For advisors, Citi’s barbell strategy offers a practical framework: maintain client exposure to secular growth leaders benefiting from AI while adding positions in cyclical and value areas poised to benefit from broader economic strength. This approach balances conviction in long-term technological disruption with participation in the cyclical recovery that Fed easing is likely to accelerate.
Wells Fargo: Industrials Poised for Tailwinds
Wells Fargo is placing emphasis on industrials, pointing to several converging tailwinds that could sustain the sector’s strength. The bank’s global investment strategy team cites increased demand from fiscal spending, the reshoring of manufacturing, and significant expansion of data centers tied to digitization and artificial intelligence.
“We expect the sector to enjoy tailwinds from increased demand from ongoing fiscal spending, attempts to reshore manufacturing, and significant data-center expansion fueled in large part by increased digitization and artificial intelligence,” strategists wrote.
The team also notes an improved outlook on tariffs and economic conditions, both of which could further support the sector. For advisors, industrials represent a way to align client portfolios with themes of policy support, technological infrastructure growth, and domestic manufacturing resurgence.
This positioning resonates particularly well for clients seeking exposure to tangible economic activity rather than purely financial or digital assets. Industrials not only capture cyclical recovery but also stand to benefit from structural trends that are less dependent on consumer demand cycles.
Implications for Advisors and RIAs
For wealth advisors, the renewed Fed rate-cutting cycle underscores the importance of revisiting portfolio allocations. While the headline move of a 25-basis-point cut may appear modest, history shows that the initiation of an easing cycle often sets the tone for equity leadership shifts.
The perspectives of the major banks converge around several themes:
-
Broader Opportunity Beyond Mega-Cap Growth: Both BofA and Citi highlight the potential for small- and mid-cap stocks to regain leadership, suggesting advisors diversify client portfolios beyond the top-heavy concentration in a handful of U.S. tech names.
-
Growth Remains a Central Theme: Goldman and Citi emphasize that growth-oriented equities, particularly those tied to AI and innovation, should continue to outperform in a low-rate environment.
-
Global and Cyclical Rebalancing: JPMorgan and Wells Fargo point to cyclicals, emerging markets, and industrials as beneficiaries of both monetary policy shifts and structural economic trends.
For advisors, the key takeaway is that clients will benefit from a more balanced approach—one that captures the durable momentum of growth leaders while positioning for cyclical and valuation-driven opportunities.
As the easing cycle unfolds, maintaining flexibility will be critical. Rate cuts can boost risk sentiment, but they also shift relative performance patterns quickly. Advisors who proactively align client portfolios with these evolving dynamics can position investors to capture the upside of a more accommodative monetary backdrop while mitigating concentration risks.
In short, the Fed’s return to rate cuts has opened the door for a broader set of opportunities. By synthesizing the perspectives of the major banks, advisors can identify strategies that fit client objectives—whether through SMID-cap diversification, targeted growth exposure, emerging market allocation, or sector-specific plays in industrials. The challenge now is execution, ensuring that portfolios reflect both conviction and adaptability as the cycle progresses.
