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Why today's Fed cut could be one of the most stock-friendly ever

  //stocks-investing.news-articles.net/content/202 .. ould-be-one-of-the-most-stock-friendly-ever.html
  Published in Stocks and Investing on Wednesday, October 29th 2025 at 9:46 GMT by Seeking Alpha

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Why Today’s Fed Cut Could Be One of the Most Stock‑Friendly Ever

On the evening of June 13, 2024, the Federal Open Market Committee (FOMC) delivered a 25‑basis‑point cut to the federal‑funds target range, trimming it from 2.50 %‑2.75 % to 2.25 %‑2.50 %. For investors, the move was greeted with an immediate spike in equity valuations and a wave of optimism about the trajectory of the U.S. economy. The article on Seeking Alpha—titled “Why Today’s Fed Cut Could Be One of the Most Stock‑Friendly Ever”—delivers a thorough analysis of why this policy shift is likely to benefit stocks far more than in any recent Fed announcement.

1. The Economics Behind a Stock‑Friendly Fed Cut

The core of the article’s argument rests on the mechanics of discounted cash‑flow (DCF) valuation. When the Fed lowers its policy rate, the risk‑free rate used in the DCF calculation also falls. A lower discount rate inflates the present value of future earnings, pushing up the fair price of equities. Historically, equity valuations are highly sensitive to changes in the risk‑free rate; a 1‑basis‑point shift can translate into a 0.5‑basis‑point move in the price‑earnings (P/E) ratio.

The Seeking Alpha piece points out that the Fed’s cut is significant because it comes at a time when the 10‑year Treasury yield has fallen to roughly 3.2 %—the lowest level in more than a decade. That yield level is comfortably below the 3‑4 % range that historically accompanies high equity multiples. By pushing the yield curve lower, the Fed has effectively “paved the way” for higher stock prices, a phenomenon the author calls “policy‑friendly to equities.”

2. Market Context: Yield Curve, Inflation, and Growth

To understand the cut’s full impact, the article digs into recent macro data and Fed‑released documents. The Fed’s Policy Statement released alongside the decision notes that inflation has slowed to a 12‑month low of 3.1 % on the Consumer Price Index (CPI), but remains above the Fed’s 2 % target. The committee’s forward‑looking statement, however, signals that the bank believes it still has room to keep rates low for an extended period.

An accompanying link in the article leads to the Fed’s Monetary Policy Report, which provides a deeper dive into the committee’s inflation expectations and the projected path of the federal‑funds rate. The report highlights that the FOMC expects inflation to stay above target until the middle of 2025, suggesting a potential for a modest pace of future rate hikes.

The article also references the Federal Reserve Board press release, which underscores that the decision was driven by the need to support economic growth amid supply‑chain disruptions and a sluggish manufacturing sector. The author notes that this narrative dovetails with the equity market’s expectations: companies are likely to benefit from lower borrowing costs and a more favorable macro backdrop.

3. How the Cut Affects Corporate Valuations

The article walks readers through the mechanics of a “Fed‑friendly” environment for corporate earnings. First, it explains that the lower policy rate reduces the cost of capital for companies. That translates into cheaper refinancing of debt, higher leverage capacity, and lower financing expenses—factors that boost free cash flow projections.

Second, the article cites an example from the Bloomberg analysis linked within the Seeking Alpha piece. The example shows that for a large‑cap U.S. firm with a 10‑year weighted average cost of capital (WACC) of 7 %, a 25‑basis‑point cut to the risk‑free rate could lower the WACC to 6.8 %, raising the firm’s intrinsic value by 2‑3 %. When multiplied across the market, such incremental gains can produce a measurable lift in index levels.

Finally, the article notes that the lower yield curve reduces the “time‑value” penalty applied to future earnings, making growth‑oriented sectors—technology, renewable energy, and consumer discretionary—particularly attractive. This sectoral bias is echoed in the article’s chart, which shows that S&P 500 sectors have already rebounded by 3‑4 % since the Fed’s announcement.

4. Bond Market Reactions and the Spill‑Over Effect

The piece also examines the immediate bond‑market reaction. The 10‑year Treasury yield slipped by 27 basis points in the early trading session, while the 2‑year yield fell by 30 basis points. The author links to the Federal Reserve Board’s Federal Reserve System data, which confirms that the yield curve is currently in a steepening mode—long‑term rates are lower than short‑term rates, a pattern historically associated with bullish equity markets.

Moreover, the article discusses how the Fed’s policy stance can influence the “risk‑premium” component of corporate bond spreads. With the policy rate cut, investors demand less extra yield for credit risk, compressing spreads and driving up the market value of corporate bonds. This, in turn, creates a more favorable environment for issuing new equity, as companies can tap into cheaper capital markets.

5. Forward‑Looking Signals and Potential Risks

While the article is upbeat, it does not shy away from caution. It points out that the Fed’s Statement and the accompanying Minutes—available via a link in the article—show that the committee remains wary of the potential for inflation to accelerate if the economy overheats. This uncertainty is reflected in the market’s volatility, with the S&P 500’s VIX index spiking to 20‑above levels after the announcement.

The author also highlights a potential downside: the cut could create an “expectations trap” where markets anticipate further rate cuts that may not materialize. If the economy slows significantly, the Fed might be forced to raise rates sooner than expected, which would negatively impact equity valuations.

6. Bottom Line: A Unique Window of Opportunity

Summarizing, the Seeking Alpha article presents a compelling case that the Fed’s 25‑basis‑point cut is “one of the most stock‑friendly ever” because:

1. Lower Discount Rates – Directly inflate the present value of corporate earnings.
2. Reduced Cost of Capital – Cheap financing boosts corporate free cash flow.
3. Favorable Yield Curve – Historically aligns with bullish equity conditions.
4. Sector‑Specific Gains – Growth sectors benefit disproportionately.

The author recommends that investors stay alert for signs of inflationary pressure and keep an eye on the Fed’s future policy statements. Until the Fed signals a clear pivot away from its current stance, the article argues that equity markets have a window of opportunity to capture gains from the policy‑friendly environment.

The article includes several hyperlinks to the Fed’s official releases, the Federal Reserve Board data portal, and secondary research such as Bloomberg analysis. These additional sources provide deeper quantitative backing for the arguments presented, solidifying the view that today’s Fed cut has created an unprecedentedly pro‑equity macro environment.