Who Gains the Most from Interest Rate Reductions?

Interest Rate Expectations: Recent signs of softening inflation and payroll data have led investors to anticipate a 50-basis-point rate cut in September, with over 90% odds priced in for this outcome.

Impact on Small-Cap Companies: Small-cap firms, which are highly sensitive to borrowing costs due to their significant debt burdens, stand to benefit the most from potential declines in interest rates.

Sector Analysis: Piper Sandler identified companies across various sectors, including technology and consumer discretionary, that are negatively correlated with Treasury yields, indicating they may perform well if rates fall.

Market Divide: A clear divide exists in the market, where rate-sensitive small caps and heavily indebted companies could gain from monetary policy shifts, while yield-linked sectors like energy and insurers may face challenges.