The US Federal Reserve (Fed) has opted for a more aggressive 50 basis point (bps) – or half a percentage point – interest rate cut. This marks its first easing move in four years.

The S&P 500 climbed immediately following the announcement, but later pulled back to close on Wednesday in slight negative territory. Short-term market volatility is expected for any major moves like this, which is why investors should focus instead on the longer-term effects.

It's a powerful signal from the Fed on its commitment to stabilising the US economy and its job market, which saw weaker data in recent months. The market expects further interest rate reductions: another 50 bps this year, a full percentage point in 2025, and 50 bps in 2026, ultimately aiming for rates between 2.75% and 3.00%.

💡Investors’ Corner: Nothing stays on top forever

The biggest companies don’t hold their crowns forever. Innovation, disruption, and competition keep the revolving door spinning, with firms always on the way in and out. You could try to predict which businesses might occupy the world’s top ten spots a decade from now. Or you could adopt a simple investing approach that works no matter how the group changes.

What does the club look like today?

It’s a tech-heavy crew these days, led by The Magnificent Seven. It’s interesting to note that today’s dominant companies trade at far lower price-to-earnings (P/E) ratios than their predecessors did. The average two-year forward P/E ratio for the Magnificent Seven stocks is 23x, compared to 52x for the market’s leaders in 2000, or 67x for the leaders in the late 1980s.

Back in the ‘80s, energy-related companies topped the list, with the view that world oil reserves were nearing their peak and would soon start to decline. That proved to be wrong. In the ‘90s, Japanese companies accounted for eight of the top ten – and many believed the country would take the number one economic spot (also wrong).

In other words, it’s impossible to perfectly anticipate changes before they happen. They tend to come along because of some new threat or disruption that people didn’t see coming. Before the AI frenzy, few saw the potential for Nvidia to join the $3 trillion club.

What’s the takeaway here?

Big Tech can invest billions of dollars widening their economic moat, so it's difficult to imagine new competitors making a dent. But investors felt the same way about IBM and ExxonMobil, and they’ve both lost their spots.

Enter passive index investing, which keeps your portfolio aligned with market leaders as they evolve over time. Couple that with a risk-considered asset allocation strategy for a hassle-free solution that eliminates the need for constant monitoring. Our General Investing portfolios fit the bill here, and they’re globally diversified to include top performers both in and out of the US.

🎓 Simply Finance: Economic moat

Just as a castle’s moat protects it from invaders, an economic moat shields a business from competitive threats. It’s the company's ability to maintain a lasting advantage, allowing it to protect its market share and profitability over time. This can come from various sources, such as a strong brand, proprietary technology, or economies of scale.

✨ Featured in App

You can now make recurring transfers between your funded portfolios—woot woot!

This new feature lets you schedule bi-weekly or monthly transfers from one portfolio to another, making it easier to automate your investment strategy. Here’s how you can use it:

• Set up a recurring transfer from your USD Cash Yield (Flexible) portfolio to the S&P 500 (Flexible) portfolio.
• Automate transfers from a low-risk General Investing portfolio to a higher-risk one, helping you dollar-cost-average into an equities-focused portfolio for long-term growth.
• Move funds regularly from any Flexible or General Investing portfolio into a Thematics portfolio to align with the trends you believe in.

And don’t forget, our top recommendation—recurring transfers from Simple to any long-term investment portfolio—remains the most popular choice!

To get started, head to the Transfer Tab > Transfer > Recurring Transfer.

Recurring transfer is only available in your mobile app. Find out more about it here.

Earn a 4.3% p.a. portfolio yield with our new low-risk, income-generating portfolio. Enjoy reliable passive income, flexible payout options, and 100% trailer fee rebates every quarter.

* The portfolio yield is indicated for an SGD-hedged portfolio as of 31 July 2024. The yield is adjusted for all relevant costs, fees and rebates. It may change depending on market conditions and is not a guarantee of returns.

J.P. Morgan Asset Management is not affiliated with StashAway. It is not responsible for investment decisions for StashAway Income Investing portfolios and makes no representations as to the advisability of investing in the same. Refer to stashaway.sg/income-investing for full disclosure.