4 Ways You Can Profit From the Fed’s Rate Cut, According to Finance Guru Graham Stephan
Written by
Tobi Opeyemi Amure
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Rebekah Evans
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The Federal Reserve’s recent decision to cut interest rates has sent ripples through the economy, affecting stocks, housing and borrowing costs. In a Youtube video, finance expert Graham Stephan breaks down how ordinary investors can leverage this move to their advantage. According to Reuters, lower rates are now driving U.S. banks to reduce their prime lending rates, benefiting both businesses and consumers with more accessible credit.
While the Fed’s rate cut marks the end of a tightening cycle, concerns over jobs, inflation and the national debt complicate the picture. Below, we explore five practical ways Stephan suggested to profit from the new economic backdrop, from investing smartly to managing risk with diversification and alternative assets.
Also here are Stephan’s five proven habits for building wealth.
Lower Borrowing Costs for Businesses and Consumers
When the Fed cuts rates, borrowing money becomes cheaper for both businesses and individuals. This can mean more capital for companies to invest in growth, new projects or hiring, which could boost stock prices. For consumers, lower interest rates might reduce loan and credit costs, leaving them with more money to spend.
Stephan explained that cheaper capital encourages reinvestment and spending, which propels economic activity and potentially raises asset prices. It’s important to note, however, that mortgage rates may not fall immediately after a Fed rate cut. They depend on long-term Treasury yields, not just Fed policy, according to CNBC.Â
Still, overall borrowing costs generally trend down, creating opportunities for investors who position themselves ahead of increased economic activity. For investors, sectors like technology and real estate usually respond positively to declining borrowing costs, making them attractive for portfolio diversification. Patience remains important, as the full economic impact typically unfolds over months, not days or weeks, per expert reactions to the recent cut.
Focus on Long-Term Treasury Influences
Stephan highlighted the critical role of the 10-year Treasury yield in shaping long-term borrowing costs, such as mortgages and corporate loans. Unlike short-term rates controlled directly by the Fed, the 10-year yield fluctuates with investor sentiment about inflation and national debt stability. This yield can keep mortgage rates high even when Fed rates fall.
Morningstar financial planners advise arranging portfolios to protect wealth from increasing rates by concentrating on various bond maturities and high-quality credit exposure. By staying diversified and matching durations to specific financial goals, investors can mitigate risk as rates move in unexpected directions.
Monitoring the broader bond market for shifts in demand and inflation fears, according to Bloomberg, helps investors avoid relying on interest rate predictions and instead prioritize resilience against market changes.
Diversify To Manage Market Risks
Stephan warned investors about concentration risk, noting that the top 10 companies now make up 40% of the S&P 500, a pattern reminiscent of the late 1990s dot-com bubble. This concentration can increase vulnerability in the stock market if a bubble bursts or speculative mania unwinds.
Stephan advised diversification across asset classes to hedge risks tied to inflation, treasury yields and market volatility. This means not putting all investments in one sector or type of asset but spreading exposure across stocks, bonds, real estate and commodities. Diversification helps protect portfolios from sharp downturns while allowing participation in overall market gains.
Watch for Job Market Signals and Fed Projections
The rate cut was largely driven by concerns over the job market, which showed significant weakness after major revisions revealed fewer jobs than expected. Stephan emphasized monitoring employment data closely, as worsening job numbers may lead to further Fed cuts or policy shifts.
Feed projections forecast more cuts through the year, with inflation expected to stay above 2%, meaning interest rates might stay lower for longer. Investors who track Fed policy and economic data can optimize portfolio decisions, aligning moves with signals of market support or caution.
Instead of trying to time the market on jobs data, investors should focus on stable sectors and financially strong companies during volatility. According to economists in the New York Times, balancing cyclical and defensive investments and keeping cash reserves ready, equips portfolios for unpredictable swings in hiring or wage growth.
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