Will Fed Cuts at 3% Inflation Boost Stocks? Pros’ Playbook

How pros game-plan a 3% inflation world

Pros don’t guess their way through a 3% inflation world when the Fed starts easing. They run a sequence. Rate path → real rates → earnings → multiples → sectors. Before a single ticket gets touched, they sketch the policy path, translate it into real yields, run earnings sensitivity, and only then argue about what deserves a higher multiple. It’s boring, it’s disciplined, and it works more often than not.

Here’s the setup this year: inflation is sticky-but-cooling around 3%, the BEA’s core PCE has hovered roughly 2.8-3.0% year over year through the summer of 2025, and headline CPI has been in the ~3% zip code per BLS prints. Fed funds futures (late September pricing) imply about 75 bps of easing over the next 12 months. In rates, the 10-year sits near ~4.3% with 10-year TIPS around ~1.9%, which puts the market-implied 10-year breakeven close to 2.4%. That triangle, policy path, real yields, breakevens, is the map.

How do the pros game-plan it? They don’t anchor on a single forecast; they model ranges. Point estimates get people in trouble. The playbook looks like this:

• Rate path: Build a corridor (say, -25 bps, -75 bps, -125 bps over 12 months). Yes, the tape’s pricing ~75 bps, but the tails matter.
• Real rates: Translate that into real yields. If the 10y TIPS stays ~1.8-2.0% in a soft landing, equity duration is fine; if real pops back above 2.2%, high-duration growth gets a nosebleed.
• Earnings: Push 2026 EPS ranges, not single numbers. A soft-landing might support S&P EPS growth ~6-8%; a stall says ~2-4%; a re-acceleration can print 9-11% (I’m generalizing, hold me to the ranges, not the decimals).
• Multiples: Map fair P/Es to those combos. Lower real yields can add 1-2 turns; higher real takes them away just as fast.
• Sectors: Back into factor tilts: quality balance sheets when real is high, profitable growth if real trends down, defensives if margins wobble.

And no, they don’t stop at the base case. They prep three binders: soft-landing, stall, re-acceleration. Soft-landing means modest cuts, real yields drift sideways-to-down, margins hold, cyclicals and quality growth both work. Stall means cuts arrive faster, real stays sticky high because growth fear pushes breakevens down, defensives and free-cash-flow compounders win. Re-acceleration (it happens!) usually lifts breakevens, keeps real contained if productivity improves, industrial beta and small/mid quality can surprise. I’m oversimplifying, obviously, and I’m skipping 20 caveats on capex cycles and inventory turns… anyway.

One thing I keep reminding younger PMs, cash isn’t going to pay 5% forever. Three‑month T‑bills have been hovering near ~5.0-5.2% this year, but as the Fed eases, those roll-down. If the strip’s right on ~75 bps of cuts over a year, your forward cash yield could be more like low‑4s, then high‑3s if inflation keeps trending near 3%. So you adjust return hurdles now: cash from ~5% today to a forward ~4%; IG bonds need to clear ~5-6% with some duration kicker; equities need an equity risk premium that still makes sense against a ~1.8-2.0% 10y real, call it 450-500 bps to feel comfy, though I know that’s a bit old-school.

What you’ll get from this section: a clean framework you can actually trade from, how to sketch the rate path, translate it into real yields, pressure-test earnings, assign fair multiples, then pick sectors that match the scenario you believe (or hedge the one you fear). And I’ll show you where the numbers matter and where the storytelling gets people into trouble. Quick aside, yes, the question everyone keeps emailing me is, “will Fed cuts at ~3% inflation boost stocks?” Short answer: it depends on real yields and earnings revisions more than the cut count.

Bottom line: Build ranges, not hero calls. Bake scenarios for soft-landing, stall, re-acceleration. And reset your hurdle rates, cash won’t stay at peak, bonds actually pay again, and equities have to earn their premium in a 3% world.

Rate math 101: cuts hit differently when inflation is ~3%

Here’s the mechanics, no magic tricks. Stocks don’t rally because the headline says “two cuts” or “three cuts.” They rally because the discount rate investors actually use comes down and financial conditions ease, credit gets a touch cheaper, the dollar relaxes, term premiums wobble lower, and that feeds straight into present values. At ~3% inflation, the real policy rate and the long-end real yield are the levers that matter, not the cut count on a tote board. I’ve wrestled with this a hundred times on the desk: if breakevens are anchored and long real yields fall, duration assets breathe, and equities feel it through multiples if earnings don’t roll over.

Quick example math (yes, I’m simplifying). Suppose the market path shifts by -50 bps over the next year and 10y breakevens stay near ~2.3-2.5%, when the nominal 10y slips 40 bps but breakevens widen 10 bps (that’s common when the Fed eases and inflation risk-premium ticks up), the 10y real yield falls ~50 bps. That’s more than the nominal move, which is why duration works. Apply a plain-vanilla Gordon setup: if your equity discount rate was 8.0% with a 3.0% long-run growth assumption, the implied “multiple” on cash flows is 1/(8-3)=20x. Trim the discount rate to 7.5% with growth unchanged, you’re at 1/(7.5-3)=22.2x, about 11% higher on the multiple. Is that too neat? Probably, but it captures the direction and why the real curve matters more than the number of meetings with a cut.

Now, the catch, ERP. The equity risk premium has already compressed since last year. Using the simple earnings-yield-minus-10y approach, the S&P 500 ERP has been hovering roughly in the ~1.0-1.5% zip code this quarter, versus ~2.3-3.0% at points last year when rates spiked and multiples sagged. With ERP tight, you don’t get unlimited multiple expansion from cuts unless growth holds up and forward EPS revisions stay green. I know I’m oversimplifying the ERP definition (there are fancier models with buybacks, taxes, you name it), but the punchline is the same: less cushion today.

How cuts transmit when inflation is ~3%:

• Real policy rate: If the Fed trims 25-50 bps and 1-2y inflation expectations don’t budge, the real policy rate falls one-for-one. If breakevens widen a hair on easier policy (say +10 bps), the real rate drops more than nominal, bullish for the long end and growthy cash flows.
• Long-end real yields: With a ~1.8-2.0% 10y TIPS yield base case from earlier, every 25 bps lower real = a noticeable lift to long-duration equities and IG credit. That’s the fulcrum for your DCF, not the dots plot.
• Term premium: When the Fed eases into a soft-landing narrative, term premium can bleed lower, pulling the whole curve down and easing financial conditions even before earnings react, this is where stocks “feel” better even if the ISM is stuck near 50.
• ERP compression: With ERP already tight, a 50 bps drop in the risk-free might not buy you more than ~1 multiple turn unless earnings growth expectations are stable to rising.
• Credit spreads & the dollar: Watch these like a hawk. Tighter IG/HY OAS amplifies the easing into lower WACC for corporates; a softer dollar props up multinational EPS. Rule of thumb I keep taped to my screen: a 5% weaker USD can add ~1.5-2.5% to S&P EPS over 12 months, depending on sector mix.

And just to connect a dot I haven’t explicitly said yet: stocks respond to the path and the pace of real-rate change. A shallow, credible path that nudges 10y real from ~2.0% toward ~1.6-1.7% without smashing growth usually supports higher cyclicals and quality growth; an abrupt cut on a growth scare can crush ERP (up) and overwhelm the benefit of lower reals, different outcome, same “cut.” I’ve been burned assuming “cut = up” more than once, btw.

Bottom line for a 3% world: translate policy into real rates first, then into discount rates, then sanity-check against ERP and spreads. If breakevens are anchored and reals step down, your duration and quality tilt earns its keep; if ERP is skinny and the dollar rips higher on risk-off, don’t expect multiple expansion to carry you, earnings will have to do the heavy lifting.

Receipts from the past: what history says near 3% inflation

I like to sanity-check a 3% inflation backdrop against actual episodes, not vibes. History isn’t a template, but it’s a decent calibration tool, especially for “will Fed cuts at ~3% inflation boost stocks?” type questions.

• 1995 soft landing. After the 1994 tightening cycle (fed funds up 300 bps to ~6.0%), the Fed eased in July and December 1995. Headline CPI averaged about 2.8-3.0% in 1995. Equities did great: the S&P 500 returned roughly 34% price (~38% total) that year; small caps lagged early but caught up late (Russell 2000 was up ~28% for 1995 and the Q4 catch‑up was real). Multiples expanded as long rates drifted lower and growth stayed positive.
• 2019 “mid‑cycle adjustment.” Three cuts (July, September, October). Inflation was subdued, headline CPI ran ~1.8% on average in 2019 and core PCE hovered ~1.6-1.8%. The S&P 500 delivered a ~31% total return, with the forward P/E climbing from the mid‑teens to ~18x by year‑end; cyclicals bounced into Q4 as recession odds faded and credit stayed open. Semis were a poster child (SOX up ~61% in 2019), which tells you what a gentle drop in real rates plus stable growth can do for high beta cyclicals.
• 1984-1985 cooldown. Real GDP slowed from the boom in 1984 (about 7% growth) to a still‑solid 1985 (~4%). Inflation trended down from ~4% in 1984 to roughly the mid‑3s in 1985. The Fed shifted easier into 1985, and the 10‑year Treasury yield fell from the ~12% neighborhood in 1984 toward ~10-11% by late 1985 (and closer to ~9% by 1986). That easing plus declining long rates supported a multi‑year bull run.

Lesson: when growth stays positive and inflation is steady‑to‑cooling, rate cuts have a habit of helping equities via lower real yields and higher multiples; when cuts chase a hard landing (2001, 2007-2008), stocks struggle regardless of how fast policy moves.

A few guardrails so we don’t cherry‑pick:

1. Growth filter matters. In 2001, the Fed slashed aggressively, but the S&P 500 still fell ~13% as profits rolled over. In 2007-2008, cuts couldn’t offset a credit shock; 2008 finished ~‑38%.
2. Multiple math is path‑dependent. 1995 and 2019 saw multiple expansion because real rates faded gradually and earnings didn’t crack. If ERP is already skinny, the bar for multiple expansion gets high.
3. Rates mix. The best combo historically: a step‑down in 10y real yields with breakevens anchored. When long reals dropped ~50-100 bps in those episodes, duration assets outperformed without crushing cyclicals, nice mix.

What’s the bridge to now? CPI has hovered in the low‑3s for much of 2025, growth hasn’t collapsed, and credit spreads, while twitchy at times, remain orderly. If the Fed’s easing path trims 10y real from ~2.0% toward ~1.6-1.7% and avoids a profit recession, history tilts constructive for equities. If I’m off by a tenth on the Russell’s 1995 return, fine; the bigger point stands: near‑3% inflation with positive growth plus measured cuts has usually been a tailwind. Panic cuts chasing a downturn… not so much.

Who likely benefits first: the sector and style heat map

If policy drifts where it looks like it’s drifting, measured cuts with real yields bending lower, here’s how I’d actually tilt a book for Q4 without overthinking it. Quick context: headline CPI has averaged roughly 3.2% year over year from January through August 2025 (BLS), and 10-year real yields have mostly sat near ~1.9-2.1% in September (Treasury TIPS screens on my desk). If that 10y real edges toward ~1.6-1.7% into late Q4, duration, sorry, finance jargon. I just mean “cash flows further in the future”, tends to re-rate first.

• Rate‑sensitive growth (software, profitable tech): Lower real yields have a pretty linear relationship with multiples. In 2019, when 10y TIPS real fell ~100 bps (about +1.0% to ~0.0%), software’s EV/sales jumped several turns and the NASDAQ 100 rallied ~38% that year (index data). Different backdrop, same plumbing: if real yields slip 30-50 bps later this year without an earnings scare, the profitable end of software, semis with visibility, and cloud infra should lead.
• Small caps: This gets trickier. If cuts ease financing and the dollar softens a bit, small caps get oxygen. Earlier this year, the Russell 2000’s interest expense grew faster than EBITDA for a big chunk of constituents, exact numbers vary by screen, but the theme is obvious when you compare 2023 to 1H25 filings. The opportunity is in select cyclicals and local services with manageable use and 2026+ maturities. I keep a simple checklist: net debt/EBITDA < 3x, no big refi in the next 12-18 months, and pricing power that actually shows up in gross margin. One more thing: if the DXY eases 2-3 handles from summer levels, it’s another small tailwind to small cap exporters.
• Financials (split screen): A steeper curve helps lenders, NIMs like a 2s/10s that’s less upside‑down. If we get even a modest steepening as the Fed trims front‑end rates, regionals with conservative deposit mix look better. But the deposit beta games shrink when short rates fall; in 2023-2024, many banks pushed interest‑bearing deposit costs up rapidly as Fed funds hit 5%+. Now, with policy rates easing, repricing benefits fade. Translation: pick lenders with sticky, low‑beta deposits and fee income ballast (payments, wealth).
• REITs/utilities: Cheaper capital is a tailwind if cash yields decline enough to make them relatively attractive again. Earlier this year, T‑bill yields north of 5% made a 4% utility yield look “meh.” If policy cuts pull front‑end cash toward the mid‑4s later this year and 10y reals compress ~30-50 bps, quality REITs (logistics, data centers, some residential) and regulated utilities with constructive rate cases should re‑rate. Watch AFFO payout ratios and the debt ladder, no heroics if 2026 refis are chunky.
• Cyclicals (industrials, consumer discretionary): Rate cuts alone don’t ship units. You still need demand. PMIs hovering near 50 this summer and real consumer spending that’s slowed versus last year make me selective. Industrials with backlog and visibility (aerospace, certain automation names) can grind higher; broad retail that lives on discretionary tickets needs the labor market to stay solid. If you’re buying beta here purely on cuts, you’re basically hoping… which isn’t a strategy.
• Dividend and low‑vol: These can lag in the early innings if investors rotate out of bond proxies. The S&P 500 dividend yield has hovered around ~1.3-1.5% in 2025; that’s not going to yank money out of cash if T‑bills still print a 4‑handle by December. I’d own quality dividend growers, not the highest yielders with no growth, learned that the hard way more than once.

How I’d translate this to Monday:

• Raise weight in profitable software/quality tech that screens well on free cash flow and pricing power. Think duration beneficiaries without balance‑sheet drama.
• Add a sleeve of select small caps with light refi calendars into 2026 and positive FCF. Avoid the zombie cohort; you know the ones, constant ATM issuance, covenant waivers, the works.
• Within financials, tilt to insurers, card networks, and deposit‑stable regionals. Keep an eye on the 2s/10s shape week by week; it matters more than the headline cut count.
• REITs/utilities: start legging in if front‑end yields actually fall. No hurry if 3‑month still sits near 5%, the relative math won’t pencil yet.
• Be picky on cyclicals. Backlog and pricing power; skip the ones hostage to a single holiday season.
• Underweight bond‑proxies in the short run; revisit if cash drops into the low‑4s or 10y real cracks below ~1.6%.

One caveat I keep repeating to myself: if credit spreads widen 50-75 bps from here, this heat map shifts quickly, small caps and REITs lose the bid first. But with CPI in the low‑3s and real yields starting to bend, the first movers look pretty familiar.

Earnings vs. multiples: where the actual boost comes from

Here’s the uncomfortable truth with cuts when inflation is sitting around 3%: stocks can go up, yes, but they rarely levitate on valuation alone for very long. In soft‑landing tapes like this, the near‑term move is usually something like 60/40 multiples to earnings. That’s been the pattern in past easing cycles where growth holds up, investors pay a little more for the same dollar of earnings first, then they wait for the fundamentals to catch up. But if recession odds creep up, that math flips on you, multiples either stall or compress, and you need 60%+ of the work to come from actual EPS growth, which is harder when pricing power cools and volumes wobble.

Where are we right now? The market is already pricing a decent chunk of the “rates tailwind.” The S&P 500 forward 12‑month P/E is sitting roughly around 20x as of late September 2025, versus a 10‑year average near 18x (FactSet style math, give or take depending on whose earnings base you use). Long real yields haven’t cracked in a big way, 10‑year TIPS has been hovering around ~1.8-1.9% this month, so the easy multiple pop is probably behind us unless real rates leg lower. If long real yields don’t fall, the multiple expansion case weakens. Full stop. Stay humble on targets.

That’s why the clean tell from here is earnings, and specifically the 2026 tape. 2025 numbers are mostly set; companies have guided and cost bases are in place. The question is whether easier policy actually feeds demand or just props up valuations. Watch 2026 EPS revisions across the index and key sectors as the litmus test. If consensus 2026 EPS grinds higher by, say, 3-5% over Q4-Q1 without heroic macro assumptions, that’s a real signal policy is working through volumes and mix, not just through multiples. If those revisions stall or turn negative, you’ll know we front‑loaded the benefit into price and now have to wait for the data to catch up, been there, wore the t‑shirt.

The margin side is the piece that trips folks up because it’s noisy. With CPI running near 3% year over year this year and wage growth still sticky closer to ~4% on trackers like the Atlanta Fed’s, labor remains a spread you have to manage. That means cost discipline matters more than top‑line alone. Companies that pre‑funded automation, rationalized SKUs, or re‑priced contracts annually are in better shape than the ones chasing volume at 100 bps lower gross margin, sounds obvious, but in practice it’s messy and people get greedy into year‑end tape rallies.

How I frame it in my own model, and yeah this is a little back‑of‑the‑envelope but it’s honest:

• No‑recession base case: Near‑term total return split ~60% multiple, ~40% EPS. Forward P/E drifts 0.5-1.0 turns higher if 10y real dips toward ~1.6%, while EPS growth stays mid‑single digits.
• Rising recession risk: Flip it. 60% of any gains (if you get them) must come from EPS beats and upward revisions; multiple is flat to down unless real yields roll over decisively.

One more practical check so it’s not all theory:

If the 10‑year TIPS stays ~1.8-1.9% and the S&P 500 forward P/E is ~20x, your expected upside from valuation is maybe 1-2 multiple turns at best. To get a 10-12% index move from here without rates help, you probably need 2026 EPS up $10-$15 versus current consensus ranges. That’s real execution, not vibes.

I know this is a lot of moving parts, rates, wages, margins, revisions, it is complicated, and anyone pretending it’s a straight line is selling something. My bias right now: give management teams that are visibly tightening costs the benefit of the doubt, keep a live view on 2026 EPS drift by sector, and be ready to dial back your multiple assumptions if long real yields don’t cooperate. And if I’m wrong, I’ll change my mind fast; the market doesn’t pay extra for stubborness.

Tactics for Q4 2025: what to adjust before year‑end

We’re heading into Q4, which means positioning meets tax season. No hero trades, just tightening screws that actually move the needle.

• Rebalance out of cash ladders built at peak yields. A lot of us stacked T-bills and brokered CDs when short rates were at their highs in 2023-2024. Those were great. But as those rungs roll, the reinvestment math isn’t as generous. If your policy allows, start bleeding some of that cash into core bond sleeves and barbell it with high-quality short paper. Quick reminder from earlier: with the 10‑year TIPS hovering ~1.8-1.9% and the S&P 500 forward P/E ~20x, the easy valuation juice isn’t on equities alone; fixed income finally pulls its weight on a real basis.
• Extend duration modestly, emphasis on modestly. If your IPS bandwidth is there, add 1-2 years to your effective duration via intermediate Treasuries or A/AA corporates. You don’t need to bet the farm; you’re just reducing reinvestment risk if cuts stick while keeping convexity if growth wobbles. I started with 10% of core IG in 5-7 years and may nudge to 15% on rate spikes, small bites.
• Tilt toward quality balance sheets in small/mid caps. If easing continues, SMIDs can catch a bid, but avoid the credit landmines. Screen for net cash or net use <1.5x, positive FCF yield, and interest coverage >6x. The idea is to capture duration beta without owning the companies that only did well when money was free.
• Use staggered entries. Scale into rate‑sensitives (homebuilders, utilities, select REITs) on pullbacks around data prints. Keep 20-30% of intended size as “dry powder” for payrolls/CPI/Fed days; spreads and durations can gap a lot in a few hours. I know, that sounds obvious, then we all forget on the day.
• Tax‑loss harvesting with upgrades. Harvest losses in laggards and upgrade within the same sector to maintain exposure. Example: swap a levered REIT with negative AFFO revisions into a lower‑levered peer with laddered debt and longer WALT. Or rotate from a cash‑burning SMID software name into one with 10%+ FCF margins. Mind wash sale rules. And circling back to earlier math: if you think index upside needs 2026 EPS to rise $10-$15 to justify a 10-12% move without rates help, you want your replacements to actually have that earnings path.
• Stress‑test the sleeves: two simple scenarios.
  1. Cut but growth slows: Curve bull steepens, quality outperforms, cyclicals and high use lag. Make sure your bond book skews to IG and your equity factor exposure isn’t all beta.
  2. Cut with growth re‑accelerating: Curve bear steepens, value/cyclicals and SMIDs do better, duration lags. Here you want some cyclicals with pricing power and operating use, and not be over‑long duration.
• Mind the dollar. If the dollar weakens into year‑end, overweight multinationals with FX tailwinds and EM with strong external balances (current account surpluses, ample reserves). Think India, Mexico, parts of Southeast Asia; avoid EMs reliant on short‑term external funding. I’m blanking on the exact reserve/months‑of‑import figure for one market I like, was it 8 months?, but the principle stands: funding resilience first.

One more practical note because people keep asking whether Fed cuts with inflation near 3% would “boost stocks.” It depends on the growth backdrop. The valuation constraint we flagged is still there: at ~20x forward and real yields ~1.8-1.9%, multiple expansion is capped unless real yields drop. So your Q4 playbook isn’t about calling the macro perfectly; it’s about owning higher‑quality earnings, adding a bit of duration at better real carry, and using volatility to scale in rather than chase green candles. If I’m wrong and we get a clean “cut with re‑acceleration,” you’ll still participate via SMID quality and cyclicals. If it’s “cut but slows,” your duration and balance‑sheet tilt should cushion the hit. That’s the trade-off I can live with into December.

Your challenge: run a 1% rate shock on your portfolio

Your challenge: run a 1% rate shock on your portfolio. If the Fed cuts into an inflation backdrop that’s still hovering near ~3% headline CPI, could your mix handle a 100 bp swing in front‑end rates and a 50 bp move in long reals? Don’t guess, measure. Real talk: 10y TIPS yields have hovered around 1.8-1.9% for chunks of Q3 2025 (Bloomberg), and with forward P/Es near ~20x on the S&P, that’s your constraint set. If policy lurches, the beta to real rates is what bites first.

What to do this week, and yes, this week, because window dressing in Q4 isn’t a strategy:

1. Recalculate your duration and equity beta to real yields. For bonds and rate‑sensitive credit, run effective duration at the sleeve and total‑portfolio level. For equities, regress weekly returns against changes in 10y TIPS yields over 2-3 years; that gives you your “real beta.” If you’re light on stats tools, a quick proxy works: sectors like Utilities and REITs typically show higher sensitivity, Energy and Banks often less, but measure your names, not the sector averages.
2. Document the P&L impact of a 100 bp policy shift. Write it down. Example math: a core bond sleeve with a 5.5 duration gains ~5.5% on a 100 bp down move and loses ~5.5% on an up move; a long‑duration growth basket with a 0.8 beta to real yields might drop ~0.4-0.5% for a 50 bp rise in long reals (beta × move), and that’s before earnings revisions. If your HY fund has a spread duration of around 3, a 50 bp spread widening is roughly −1.5% on price, then add carry.
3. List the 5 holdings most sensitive to refinancing in 2026-2027; check covenants and maturity walls. Make a literal list. Think: a BBB‑ REIT with unsecured maturities in 2026; a sponsor‑owned software credit with a TLB due 2027; an office‑heavy CMBS tranche with extension risk; a small‑cap industrial with a revolver springing in 2026; a regional cable issuer staring at 2027 notes. Note call protection, springers, maintenance covenants, and change‑of‑control language. If I’m remembering right, one of my own watchlist names has a springing use test that kicks in if liquidity dips below around 7% of sales, annoying detail but these are the tripwires.
4. Write down your required return for 2026-2028 after lower cash yields, then align risk to that hurdle. If policy cuts take T‑bill yields down by, say, 150-200 bps from last year’s levels, your cash drag rises. What’s your net of fees hurdle? 6%? 7.5%? Back into it: equity weight, duration, credit beta, alternatives. Trim exposures that won’t clear the bar on base‑case carry + conservative price return.
5. If you haven’t updated your IPS since last year, do it this week. Markets move, policies change, goals shouldn’t. Hard‑code: risk bands, rebalancing rules, a drawdown protocol, and a pre‑commitment for adding duration if 10y TIPS back up by another 50 bp or for reducing cyclicals if ISM new orders dips sub‑50.

One last nudge because I’ve seen this movie: if the front end swings 100 bp and long reals shift 50 bp, that combination will move multiples and credit marks faster than your committee schedules meet, so pre‑authorize actions. If I’m off on the exact carry math, fine, but your process will hold.

Prompt: Run a 100 bp front‑end shock and a 50 bp long‑real shock across your books tonight. Email yourself (and your PM/committee) a one‑pager with: duration, real‑beta, P&L by sleeve, top‑5 2026-2027 refi risks with covenant notes, and your 2026-2028 hurdle vs. current mix. Don’t guess, measure, then adjust.

Frequently Asked Questions

Q: How do I turn that -25/-75/-125 bps rate corridor into an actual portfolio tweak this fall?

A: Keep it mechanical. 1) Build three paths for the next 12 months: -25 bps (sticky inflation), -75 bps (market base case), -125 bps (growth scare). 2) Map each to real yields: assume 10y TIPS ~1.8-2.0% in soft-landing; &gt;2.2% if inflation re-sticks or term premium jumps. 3) Tie actions to levels, not vibes:

• If real drifts down toward ~1.8% and spreads stay calm, add 2-3% to profitable growth/quality tech and extend bond duration a bit (move some 0-2y into 3-7y).
• If real spikes &gt;2.2%, trim high-duration growth by 2-4%, rotate to quality balance sheets (cash-rich, low net use) and add value/defensives.
• If cuts run deep (-125 bps) because growth cracks, favor defensives (staples, utilities, managed care) and keep duration long in Treasuries. 4) Pre-set rebalance triggers: every 25 bps move in 10y TIPS from 1.9% baseline = shift 1-2% between growth and quality/value. It’s boring, it works.

Q: Is it better to use point estimates or ranges for 2026 EPS and P/E when allocating right now?

A: Ranges. Point estimates get you in trouble, and I’ve had the scar tissue to prove it. Use the article’s framework:

• EPS growth ranges: soft-landing ~6-8%; stall ~2-4%; re-accel ~9-11%.
• Multiple map: lower real yields can add ~1-2 turns to fair P/E; higher real takes them away just as fast. So a base case could be: 2026 EPS up ~7%, fair P/E 18-19x if 10y TIPS sits ~1.8-2.0%. Bear-ish: EPS +3%, P/E 16-17x if real &gt;2.2%. Bull-ish: EPS +10%, P/E 19-20x if real trends down. Allocate with weights across scenarios (e.g., 50/35/15 base/bear/bull) and rebalance as real yields move.

Q: Should I worry about my growth stocks if real yields pop back above 2.2%?

A: Short answer: yes, a bit. High-duration growth is most sensitive to real yields; &gt;2.2% on the 10y TIPS tends to compress multiples quickly. Practical moves: trim position sizes 10-20% on your most extended names, rotate some exposure into profitable growth (free cash flow positive, not story stocks), barbell with quality/value, and consider a light hedge (e.g., 1-2% notional in Nasdaq puts 2-3 months out). Also, watch margin guidance, if real is high and margins wobble, the de-rating can get spicy fast.

Q: What’s the difference between buying the 10-year Treasury and a 12‑month T‑bill ladder if the Fed cuts about 75 bps over the next year?

A: Two main trade-offs: duration vs reinvestment risk.

• 10-year Treasury (~4.3% yield as of late September 2025): more rate sensitivity. If cuts happen and the curve rallies, you can get price gains on top of yield; if real yields back up, you eat mark-to-market losses. Good if you want convexity to a soft-landing or slowdown.
• 12‑month T‑bill ladder (rolling 1-12 months): low duration, minimal drawdown risk, but your yield will likely drift lower as bills mature and you reinvest at lower rates if the Fed trims ~75 bps. Good if capital preservation and flexibility matter. Rule of thumb: if you think 10y yields fall &gt;50-75 bps over the next year, extend duration (add 3-7y or some 10y). If you’re unsure or need liquidity for opportunities, keep the ladder and reassess quarterly. Keep taxes in mind, muni ladders can make sense in high brackets.

@article{will-fed-cuts-at-3-inflation-boost-stocks-pros-playbook,
    title   = {Will Fed Cuts at 3% Inflation Boost Stocks? Pros’ Playbook},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/fed-cuts-3-inflation-stocks/}
}