A potential rate-cutting cycle from the Federal Reserve may positively impact certain technology stocks. Markets are anticipating a rate reduction from the central bank on Wednesday, following over two years of aggressive rate hikes aiming to curb persistent inflation. This will conclude one of the most stringent tightening periods in recent history.
Technology stocks have already shown remarkable performance this year, driven by the ongoing momentum in artificial intelligence (AI). The anticipated easing by the central bank could further enhance this growth as lower borrowing costs are expected to boost earnings. Historically, the tech-heavy Nasdaq Composite tends to rally significantly, gaining more than 6% on average in the three months following the first rate cut in a policy cycle, according to data from Canaccord Genuity. The index has historically jumped more than 13.2% and 19% six months and a year, respectively, after an initial cut. So far this year, the index has risen over 17%.
To identify potential technology winners in this cycle, CNBC analyzed the median performance of S&P 500 information technology members since 1984 in the three months following the Federal Reserve’s first rate cut. Western Digital stands out, historically rallying a median of 26.6%, the highest among the group, with shares rising nearly 26% this year due to ongoing AI benefits.
Apple has also been a significant beneficiary following a rate cut, with a median rise of 16.2%. The technology giant’s shares have gained 12% this year, despite a nearly 6% decline since early September. This month, Apple launched its iPhone 16 model, featuring the much-anticipated AI capabilities, Apple Intelligence. However, shares have receded as investors question whether the new features will sufficiently attract consumers to upgrade.
Advanced Micro Devices (AMD), a key player in AI chip manufacturing, has historically benefited from a rate hike, showing a median rally of 11.4%. However, its shares have risen less than 2% this year and closed Tuesday’s session nearly 29% below their early March peak.
Not all technology stocks are expected to benefit from a rate-cutting cycle. Micron Technology has had the poorest track record, with the stock typically falling a median of almost 14% in the three months following an initial cut. Recently, Micron shares have gained from increased memory needs driven by AI enthusiasm, with shares up approximately 3.5% year to date, although still more than 42% below their highs.
Other potential losers following a rate cut include Analog Devices, Teradyne, and IBM.
