Hua Er Jie Jian Wen·2025-09-18 00:53Core Viewpoint - Following the Federal Reserve's long-anticipated interest rate cut, Wall Street experienced a "sell the fact" trading pattern, with funds flowing out of overvalued tech stocks into traditional sectors like finance and utilities that benefit from lower rates [1][3]. Group 1: Federal Reserve Actions - The Federal Reserve cut interest rates by 25 basis points and indicated the possibility of two more cuts within the year, citing employment risks [1]. - Fed Chairman Jerome Powell noted a slight increase in inflation risks and described the rate cut as a "risk management" move, which intensified the sell-off in tech stocks [1][4]. Group 2: Tech Sector Performance - The Nasdaq 100 index fell by 0.2%, with the tech-heavy "Big Seven" index declining by 0.66%, ending a four-day rally [1]. - Since early April, the "Big Seven" tech stocks, including Nvidia and Alphabet, surged nearly 60%, with their expected price-to-earnings ratio rising from about 22 to 30 [3]. - There was a notable divergence within the tech sector, with rate-sensitive stocks like Nvidia, Amazon, and Broadcom declining, while Apple and Microsoft, viewed as safer investments, saw gains [7]. Group 3: Bond Market Impact - The rise in U.S. Treasury yields negatively impacted tech stocks, with the 10-year yield increasing by 6.3 basis points and the 2-year yield by 5.62 basis points after Powell's remarks [4][6]. - Higher yields can diminish the present value of future profits, which is critical for tech companies whose valuations are heavily based on long-term earnings expectations [6]. Group 4: Traditional Sectors' Response - As tech stocks faced pressure, capital shifted towards sectors that directly benefit from lower interest rates, such as finance, consumer staples, and utilities, which performed well on the S&P 500 [8]. - The KBW Bank Index rose by 1.3%, benefiting from lower rates that are expected to stimulate loan demand and reduce deposit costs [8]. - The Russell 2000 small-cap index saw a temporary increase of 2.1%, reflecting a shift in risk appetite among investors [8]. Group 5: Market Sentiment - Despite the sector rotation, the market did not exhibit panic, with the Cboe Volatility Index (VIX) dropping below 16, indicating lower volatility compared to typical market stress levels [9]. - The S&P 500 index experienced only a 0.1% decline, marking one of the least volatile Fed decision days in two years [9].