Singapore | December 2025 — LINK FOREX Chief Equity Analyst David Whitcombe has released a new investment white paper titled “Investment Strategies in a Rate-Cut Cycle,” providing a comprehensive analysis of how the upcoming interest-rate easing cycle is expected to reshape valuation structures, sector rotation patterns, and overall risk appetite within the U.S. equity market.
Whitcombe noted that the initiation of the rate-cut cycle marks a critical transition in the macro policy environment—from prolonged restraint toward gradual easing—setting the stage for meaningful changes in equity market dynamics over the next year.
“Policy conditions are shifting as inflation has moved into a manageable range and economic momentum has moderated,” Whitcombe stated. “This creates a fundamentally different backdrop for equity valuation and capital allocation.”
The white paper identifies three key macroeconomic factors underpinning the policy shift:
1.Sustained moderation in inflation — Core inflation indicators have declined steadily to approximately 2.4%, maintaining a downward trend for twelve consecutive months and creating space for policy adjustment.
2.Slowing economic growth momentum — Fourth-quarter growth decelerated, with both manufacturing activity and labor market indicators entering a cooling phase, increasing the economic cost of maintaining elevated interest rates.
3.Valuation compression under prolonged tight conditions — Extended periods of high financing costs have weighed on equity valuations, and easing measures are expected to unlock previously suppressed valuation potential.
Market Impact Outlook: Sector Rotation and Style Differentiation
Based on LINK FOREX’s proprietary models, Whitcombe outlines several key implications for U.S. equities over the next two quarters:
Technology and High-Growth Sectors Expected to Lead
Lower discount rates are likely to enhance the attractiveness of long-duration cash flows, benefiting technology and innovation-driven industries. Areas such as artificial intelligence, cloud services, and semiconductors are positioned for valuation recovery and expansion.
Forecast: Broad U.S. growth-oriented equity segments are expected to deliver mid- to high-single-digit gains over the next six months.
Financial Stocks Face Structural Headwinds but Improved Medium-Term Prospects
Narrowing interest margins may place pressure on traditional banking profitability in the near term. However, improving asset quality and recovering capital market activity are expected to partially offset these challenges.
Forecast: The S&P Banking Index is projected to fluctuate between –2% and +3% in the short term, with the 2026 outlook revised upward to +6%–10%.
Small-Cap Stocks Positioned for Relative Outperformance
As financing costs decline, earnings sensitivity among small and emerging companies is expected to exceed that of large-cap peers, potentially driving a long-awaited rebound in the small-cap segment.
Forecast: Russell 2000 upside potential of 12%–20% over the next twelve months.
Mid-Term Outlook (2026): Rising Soft-Landing Probability and a Structurally Bullish Market
Whitcombe emphasized that the central variable for U.S. equities in 2026 will be the durability of economic growth. Current indicators suggest that the probability of a soft landing continues to increase.
The white paper highlights three structural drivers likely to shape the next phase of the market cycle:
A potential restart of the corporate capital expenditure cycle, supported by improved financing conditions and increased investment in automation, AI infrastructure, and green energy.
A gradual recovery in consumer momentum, aided by a declining household debt ratio and improving credit availability.
A period of moderate valuation expansion across the broader U.S. equity market.
LINK FOREX Model Projection:
S&P 500 fair valuation range of 20–22x forward P/E.
“The market narrative is transitioning from ‘pricing in easier policy’ to ‘pricing in sustainable growth,’” Whitcombe said. “This shift marks the point at which a structurally bullish trend can take hold.”
Despite the improving outlook, Whitcombe cautioned investors to remain attentive to key risks, including the possibility of renewed inflationary pressures slowing the pace of easing, corporate earnings failing to recover in line with improved liquidity conditions, and external shocks arising from geopolitical tensions or global supply chain disruptions.
“Rate cuts are not a cure-all,” Whitcombe concluded. “The continued rise of U.S. equities ultimately depends on meaningful improvements in corporate profitability. The defining theme of the coming year will be a gradual transition from liquidity-driven gains to growth-driven returns.”
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