Analysis of the Impact of the Federal Reserve's Pause in Interest Rate Cut Cycle on US Stock Valuations and Asset Allocation Strategies

Based on the latest market data and research report information, I will systematically analyze

.

---

The Federal Reserve has cut interest rates three consecutive times by December 2025, lowering the federal funds rate by 25 basis points to the

[1][2]. According to research reports from Guotai Haitong and the latest market data:

Key Indicators	Current Value	Market Expectations
Probability of January Rate Cut	only 5%	Almost certain to pause
Timing of First 2026 Rate Cut	June or September	Delayed compared to previous expectations
December Unemployment Rate	4.4% (fell more than expected)	Expected to fall to 4.5%
Nonfarm Payrolls	Expected 70,000-75,000	Rebound from 64,000 in November

Minutes of the FOMC meeting show that policymakers have

[1][2]:

• Majority
  : Support continued rate cuts to address downside risks to employment
• Minority
  : Tend to keep rates unchanged to assess lagged effects of policies

Federal Reserve Governor

put forward a bold view on January 8, 2026, advocating for approximately , stating that current interest rates are still “significantly above the neutral level”[3]. However, this view diverges sharply from mainstream market expectations—the market generally expects only for the full year.

---

As of January 10, 2026, major US stock indices have shown a

:

Index	Past 30-Day Performance	YTD 2025	Valuation Characteristics
S&P 500 (SPY)	+2.54%	+19.57%	Current price is at the 97.2th percentile of the past 3-month range
Nasdaq	+2.19%	-	Led by tech stocks
Dow Jones Industrial Average	+4.89%	-	Strong performance from traditional blue chips
Russell 2000	+6.42%	-	Best performance from small-cap stocks

Stock	Market Capitalization (USD Trillion)	P/E (TTM)	52-Week Price Change	Valuation Assessment
Alphabet (GOOGL)	3.97	32.40	Hit 52-week high	Elevated valuation
Apple (AAPL)	3.83	34.72	+46.5%	Reasonably elevated valuation
Microsoft (MSFT)	3.56	34.09	+31.2%	Moderate valuation
NVIDIA (NVDA)	4.50	45.87	+85.3%	Elevated valuation

Based on technical analysis of the S&P 500 ETF (SPY):

[4]:

• RSI(14) = 72.49
  : Has entered the
  overbought zone
  , posing short-term pullback risks
• MACD Indicator
  : Bullish signal, but momentum has weakened somewhat
• Stock Price Position
  : Above the 20-day moving average (+1.29%) and 50-day moving average (+2.07%), showing a
  bullish alignment
• Price Range Position
  : At the
  97.2th percentile
  of the past 3-month high, close to the upper bound of the range

---

:

1. Increased Expectations of Economic Soft Landing
   : The labor market remains resilient (low hiring, low layoffs), and the unemployment rate unexpectedly fell to 4.4%, indicating the economy has not entered a recession[1][2]
2. Reduced Policy Uncertainty
   : Pausing rate cuts means monetary policy enters a stable period, reducing market volatility
3. Stable Capital Costs
   : Improved predictability of corporate financing conditions

:

1. Weakened Valuation Support
   : During a rate cut cycle, falling interest rates boost intrinsic stock value via the DCF model; pausing rate cuts will weaken this support
2. Pressure to Adjust Earnings Expectations
   : If economic growth slows, corporate earnings growth may fall short of expectations
3. Marginal Tightening of Liquidity
   : Pausing rate cuts means easing will not be further expanded

:

• Real Estate
  (+1.36% intraday gain): Pausing rate cuts may delay its valuation recovery[5]
• Industrials
  (+1.32%): Supported by expectations of economic resilience
• Consumer Staples
  (+1.13%): Defensive attributes stand out

:

• Energy
  (-1.59%): Demand outlook impacted by expectations of economic slowdown
• Financials
  (-1.01%): Interest rate-sensitive sector
• Healthcare
  (-0.64%): Valuations returning to rational levels

---

Based on the macro environment of

, a strategy is recommended:

Strategy Dimension	Recommendation	Rationale
Overall Positioning	Maintain neutral-to-cautious positioning	Valuations are at high levels, RSI is overbought
Sector Allocation	Balance defensive and growth sectors	Balance valuation and growth
Style Preference	Value over growth	Expectations of rate cuts have weakened
Geographic Allocation	US stocks as core, moderate diversification	US stocks have the best liquidity

1. Healthcare
   (Allocation opportunity after valuation correction)
   • Sub-sectors: Innovative drugs, medical devices
   • Rationale: Defensive attributes + reasonable valuations + high earnings certainty

2. Consumer Staples
   • Sub-sectors: Food & beverage, household goods
   • Rationale: Inelastic demand during economic slowdown

3. High-Quality Tech Leaders
   • Targets: Apple, Microsoft, Alphabet
   • Rationale: Relatively reasonable valuations (30-35x PE), strong earnings growth certainty

1. High-Valued Growth Stocks
   (especially AI-themed stocks)
   • Risk: High interest rate sensitivity, significant valuation pullback pressure

2. Energy Stocks
   • Risk: Demand impacted by expectations of global economic slowdown

3. Small-Cap Stocks
   (Russell 2000)
   • Risk: Elevated valuations + higher interest rate sensitivity

:

• 40% S&P 500 index fund
• 25% High-quality tech leaders (Apple, Microsoft)
• 20% Healthcare ETF
• 15% Bonds/cash

:

• 35% S&P 500 index fund
• 25% Growth tech stocks (AI, semiconductors)
• 20% Industrials/consumer discretionary
• 20% Bonds/gold

---

Risk Type	Details	Response Strategy
Policy Risk	Policy orientation of the new Federal Reserve Chair	Monitor nomination confirmation and congressional testimony in January-February
Economic Risk	Unexpected deterioration of the labor market	Monitor weekly initial jobless claims
Inflation Risk	Core PCE rises above 3%	Rate cut expectations may be further delayed
Valuation Risk	S&P 500 is at historical highs	Control positions, reduce holdings on rallies

:

• January nonfarm payrolls data (released January 10)
• January FOMC meeting minutes
• Core PCE Price Index

:

• Progress of Federal Reserve Chair appointment
• Corporate Q1 earnings performance
• Structural changes in the labor market

---

:

1. Pause in rate cut cycle is a foregone conclusion
   : The probability of a rate cut in January is only 5%, and the first rate cut in 2026 may be delayed to June or September

2. US stock valuations are under pressure
   : Current prices are at the 97th percentile of the past 3-month range, RSI is overbought, posing short-term pullback risks

3. Allocation strategy shifts to defense
   : Recommend shifting from high-valued growth stocks to high-quality value stocks and defensive sectors

4. Focus on catalyst events
   : Appointment of new Federal Reserve Chair, nonfarm payrolls data, corporate earnings performance

: In the current environment, , control positions, and wait for better allocation opportunities. Focus on high-quality assets with reasonable valuations and high earnings certainty, and avoid chasing high-valued hot sectors.

---

[1] Wall Street CN - “It’s Nonfarm Payrolls Night Again! Employment May ‘Mildly Rebound’, Is a January Rate Cut Still Possible?” (https://wallstreetcn.com/articles/3762947)

[2] FastBull - “Nonfarm Payrolls Night Exam: Is the Fed’s January Rate Cut in Jeopardy?” (https://m.fastbull.com/cn/news-detail/4364562_1)

[3] East Money - “150 Basis Points of Fed Rate Cuts? Milan’s Comments Ignite the Stock Market” (http://caifuhao.eastmoney.com/news/20260108232200034276910)

[4] Jinling AI - Market Data and API Analysis

[5] Jinling AI - Industry Performance Analysis