US stocks (^DJI,^GSPC, ^IXIC) continue to rally after the Federal Reserve cut rates for the first time in four years, kicking off a rate-cutting cycle. Market Domination anchors Julie Hyman and Josh Lipton sit down with Evercore ISI’s senior managing director of equity, derivatives, and quantitative strategy, Julian Emanuel, who cautions investors from viewing the post-cut market as a “new era" and shares his view on the artificial intelligence (AI) boom.

“The Fed cutting cycle tends to be supportive [for equities], and looking out 12 months, stocks tend to rally,” Emanuel says.

“We like this idea of barbelling what you would call the higher beta sectors: Infotech, Nasdaq-like stocks, and small-caps. Small-caps, in particular, love the concept of a soft landing against more defensive sectors [like] consumer staples and health care.”

The strategist says, “I would caution people getting [in] the mindset of a new era because that's sort of when you run into trouble…” but again, “the setup for further gains, most certainly into year-end, and likely extending into 2025, are certainly there.”

Emanuel notes that some of the recent market volatility was driven by macroeconomic uncertainty ahead of the rate cut and uncertainty around AI stocks. “Obviously, part of the discomfort that the market has in recent months is whether the validity of AI is, in fact, valid, and from our point of view, we have always felt that it was a potential productivity game-changer,” he says, adding that the recent $30 billion partnership between Microsoft (MSFT) and BlackRock (BLK) to build AI infrastructure is “absolutely a vote of confidence that AI's productivity-enhancing potential is real and likely to accelerate, particularly into 2025...We think about the cost of capital, companies that understand how to deploy generative AI will, all else equal, have their cost of capital diminish over time.”

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This post was written by Naomi Buchanan.