With the Federal Reserve restarting its campaign of interest-rate cuts last week, markets may be entering a new phase that could create fresh opportunities for investors across a range of asset classes.
Historically, rate cuts have had mixed implications for markets. But there’s reason to believe that this time around, certain specific market segments—as well as some broad asset classes—could respond positively.
Read on for 5 investing ideas to consider when interest rates are falling.
1. Homebuilders: Poised for a rebound in the housing market
Few segments of the economy are as sensitive to interest rates as the housing market. After a prolonged deep freeze in home sales—driven by affordability challenges and high mortgage rates—the housing market could finally be ready to thaw. Such a turnaround could be bullish for homebuilders.
One key to a continuing rebound? Whether Fed rate cuts translate into lower long-term yields and mortgage rates. That link didn’t hold a year ago as the Fed was cutting rates, but if mortgage rates fall this time, demand for new and existing homes could rise—and homebuilder stocks, which have been trading at low relative valuations, could benefit.
Historically, when homebuilder stocks have been this cheap and long-term rates have fallen, they’ve outperformed nearly 80% of the time. Even if home prices were to decline, those low valuations may help cushion the potential downside.
“Homebuilders offer the closest correlation to home sales that you can find in the stock market, and the risk-to-reward ratio on these stocks looks appealing to me in the current environment,” says Denise Chisholm, director of quantitative market strategy with Fidelity.
Read more about the case for homebuilder stocks.
2. Intermediate-term bonds: A sweet spot for income and diversification
Falling rates can present a conundrum for investors who have been relying on relatively high yields in short-term fixed income. As rates fall, investors with short-term CDs and bonds coming due or who have been parked in money-market funds, may find they can’t earn as much on their money as they were a few years (or months) ago.
By investing at slightly longer maturities, investors may be able to lock in today’s still relatively high interest rates for longer—heading off the chances of further interest-rate cuts eating into their portfolio’s income-producing potential.
Moreover, bonds with longer maturities are more rate-sensitive than shorter-term bonds, and so have the potential to rise in price as interest rates fall (bond prices generally fall when interest rates rise and rise when interest rates fall). This means going longer could offer investors a double benefit: Locking in higher rates for longer, while also setting investors up to benefit from any price gains.
Intermediate-term bonds—such as those with maturities of around 5 years—have historically provided a buffer against stock market swings, while still offering the potential for capital appreciation and current income. In the current environment, the balance they offer between yield and rate sensitivity could be a sweet spot.
3. US stocks: A potential broad lift from falling rates
Rate cuts alone aren’t always bullish for stocks. What really matters is why the Fed is cutting. When the Fed has cut rates because it must—in response to a recession—returns have been poor. When the Fed has cut rates because it may—meaning inflation is low and growth is slowing but not negative—returns have been strong.
Much has been made of recently reported weakness in the job market, with some investors extrapolating that this weakness is a sign of looming recession. But remember that jobs numbers are inherently a backward-looking indicator—they only tell us where the ball has been, and not necessarily where it’s going.
“What I find more convincing are certain leading indicators, meaning metrics that turn before the economy does,” says Chisholm. For example, CEO business confidence—meaning the confidence CEOs have about their own business conditions—saw a big jump recently, rising 30% over the previous quarter. CEOs generally have well-informed views shaped by the concrete outlook for their businesses. In the past, jumps in confidence like this have been leading indicators of future earnings growth and economic growth.
“This is not to say that recession is completely off the table as a possibility, but I believe recession risks are limited right now,” says Chisholm. “If the economy does keep growing, it could create very bullish conditions for US stocks.”
In fact, in past periods with similar conditions, stocks got a lift not only from rising expected earnings growth, but also from rising valuations like price-earnings ratios (PEs).
Read more about why rate cuts could be bullish.
4. International stocks: Diversification with potential
After years of underperformance, international stocks have been roaring back to life so far in 2025. While both emerging and developed-market stocks have been broadly outperforming US stocks this year, developed markets have been at the top of the leaderboard. As of September 12, the MSCI EAFE Index of developed markets had returned 25% year to date in 2025, compared to 26.1% for the MSCI Emerging Markets Index and 11.2% for the S&P 500.
Partly fueling this outperformance has been a weakening US dollar. The US dollar has declined 10% so far in 2025, compared with a basket of other countries’ currencies. When the value of foreign currencies rises relative to the US dollar (i.e., when the dollar falls relative to these currencies), holdings denominated in those currencies rise in dollar terms.
But the case for international investing goes beyond currency. Many global economies are in earlier stages of the business cycle than the US, with central banks in Europe and Canada already having cut rates. And valuations abroad remain attractive relative to US stocks, especially in emerging markets, where consumer demand is expected to drive long-term growth.
From European luxury brands to Japanese companies undergoing governance reforms, international markets may offer compelling opportunities for investors looking to diversify. Learn more about the case for going international.
5. Industrial stocks: Riding long-term trends
Industrials have been one of the top-performing US sectors so far this year, thanks to strength in aerospace and defense, construction, and electrical equipment. But the rally may not be over.
Big-picture trends like reshoring, the AI infrastructure buildout, and factory automation have been fueling demand for industrial products and services. Companies that provide the physical backbone of the economy—like power systems, climate control, and advanced manufacturing—could be well positioned to benefit.
While some areas of the sector remain sensitive to an economic slowdown, many industrial firms are aligned with longer-term market trends and growth drivers that could support continued momentum.
Learn more about why momentum in industrials could continue.
The bottom line
Rate cuts don’t guarantee market gains—but they can create favorable conditions for certain investments. Whether you’re looking for growth, income, or diversification, now may be a good time to revisit your portfolio and consider where opportunities may lie.