• Markets now price in two or more Fed rate cuts in 2026, driven by labor-market concerns flagged by Chair Powell.
  • Strategists like Scott Helfstein of Global X see this dovish stance broadly supporting risk assets, particularly growth stocks, cyclicals, and sectors tied to corporate investment.
  • Infrastructure, copper/materials, AI, data centers, and robotics are highlighted as key beneficiaries, while short-duration bonds and gold may underperform.

After recent Federal Reserve meetings, Chair Jerome Powell has repeatedly emphasized labor-market softening as a critical risk, framing potential rate cuts as "risk-management" moves to prevent further deterioration in employment. This shift in tone has led markets to increasingly price in a more dovish stance for 2026, with expectations now centered on two or more rate cuts that year, according to people familiar with market dynamics. While some institutional forecasts, such as those from J.P. Morgan Research (JPM), still project a more modest path—with one cut in 2026 following additional cuts in 2025—the market's view appears more aggressive than the Fed's own projections, underscoring a growing anticipation of easing.

In this environment, strategists argue that a sustained decline in rates would likely boost risk assets across the board. Scott Helfstein of Global X points to growth stocks and cyclicals as prime candidates for gains, alongside infrastructure, copper and other materials, and sectors like AI, data centers, and robotics, which are highly sensitive to financing conditions and corporate investment. "A dovish Fed will broadly support risk assets, especially those tied to capital expenditure," Helfstein noted in recent comments, though attempts to reach him for further elaboration were unsuccessful. Conversely, short-duration bonds and gold are seen as relative underperformers, while longer-duration bonds could become more attractive as yields fall with policy easing.

The backdrop for this shift includes contained inflation and enough labor-market slack to worry policymakers, giving the Fed room to cut without reigniting price pressures. Lower U.S. rates typically ease global financial conditions, supporting equities and credit worldwide, and may weigh on the U.S. dollar, benefiting commodities and emerging markets. The expected beneficiaries—infrastructure, materials, AI and data-center build-out, robotics—align with broader investment trends such as digitalization, reshoring, grid upgrades, and energy transition, all of which are capital-intensive and rate-sensitive.

Politically, Fed policy remains formally data-dependent and independent, but a weaker labor market is sensitive, especially near election cycles, increasing scrutiny on whether the Fed is doing enough to support employment. U.S. fiscal policy, including large deficits and industrial programs like infrastructure and clean-energy incentives, interacts with lower rates by supporting investment demand in the highlighted sectors. Internationally, a dovish Fed could reduce pressure on other central banks to keep rates high purely to defend their currencies, potentially re-steepening global yield curves and supporting risk-on flows into non-U.S. assets.

Looking ahead, markets will focus on each jobs report and inflation release for confirmation that the Fed can continue or expand its cutting cycle. Any upside surprises in inflation or re-tightening in the labor market could reduce the expected number of 2026 cuts, hurting long-duration assets and high-beta risk assets. If the labor market weakens but inflation stays contained, a gradual cutting path is likely, favoring long-duration Treasuries and investment-grade credit, along with growth and capex-linked sectors. However, if inflation proves sticky, the Fed may deliver fewer cuts than the market expects, challenging the narrative and supporting the dollar and front-end yields instead.

Correction: An earlier version of this article misstated the timing of expected rate cuts; it has been updated to clarify that markets are pricing in cuts for 2026, not 2025.