The Federal Reserve cut interest rates three times in 2025, each by a quarter of a percentage point. The most recent cut, on Dec. 10, left benchmark rates at 3.5% to 3.75%. The cut was controversial, with a six-year high of three dissents.
In a news conference after the decision, Federal Reserve Chair Jerome Powell said that further cuts would be difficult to justify, but post-shutdown data would likely make future decisions easier.
Investing in this economic environment can be challenging. There’s a lot of speculation, and the available information is scattered across various sources.
Fortunately, ChatGPT excels at gathering and synthesizing information into clear recommendations. Here’s what it said when asked about the best investments after the recent rate cut.
Cyclical and Growth Sector Stocks
Stocks are ChatGPT’s first recommendation for post-cut investing. The popular tool drew on a recent BlackRock Capital source to recommend growth stocks, specifically in technology-related industries. According to BlackRock’s iShares, these stocks tend to benefit most from rate cuts.
Growth stocks are shares of companies that are expected to grow their revenue faster than the market average. Companies that issue these stocks typically have a competitive advantage and a loyal customer base.
ChatGPT also suggested investing in cyclical sectors, which tend to mirror the overall market’s ups and downs. The AI model’s source, Business Insider, said that these industries tend to outperform more stable sectors in the early days following a rate cut.
Here’s ChatGPT’s overall recommendation: “Consider broad market exposure (e.g., S&P 500 or total-market ETFs) with tilts toward sectors that historically gain from rate easing.”
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Long-Term Bonds and Bond Funds
As Fidelity explains, bond values typically rise when interest rates fall. A bond typically has a fixed interest rate that doesn’t change when the Fed cuts its rates. If you bought a Treasury bond with a 4% yield in October and the current interest rates are no higher than 3.5%, your bond would appear more attractive. The price can go up to compensate, making your bond worth more.
ChatGPT recommended long-term bonds and bond funds, which are investments in a mix of different bonds. Duration to maturity is crucial, as value adjustments affect all payments until the bond matures.
“If rates fall even a little, the present value of decades of payments increases,” ChatGPT explained regarding 20- to 30-year bonds. “Investors get capital gains, not just interest.”
Real Estate Investments and Housing-Related Stocks
Real estate investments often appreciate after a rate cut. As Yahoo Finance explained, this happens because mortgage rates tend to mirror trends at the Fed. Although there’s no guarantee, Wall Street saw a decline in the 10-year Treasury yield after the December decision. The Treasury yield is a major driver of mortgage rates.
ChatGPT recommended taking advantage of this opportunity by investing in real estate investment trusts. An REIT is a company that buys and usually operates income-generating real estate, including commercial and multifamily properties.
ChatGPT also pointed to real estate exchange-traded funds, which are baskets of investments in different REIT companies. ETFs track a market index rather than a single company’s performance, which may reduce your risk. Of course, any investment involves risk, and the direction of the real estate industry is anything but certain.
If you’re not interested in income-producing real estate, ChatGPT suggested looking at stocks in housing and mortgage companies, which can also perform well after a cut. This time, shares of homebuilders rose within hours of the Fed’s decision.
International Equities and Emerging Markets
Declining U.S. interest rates can make global investments more attractive. According to ChatGPT, “Lower U.S. rates can weaken the dollar and encourage flows into international equities and emerging markets, which often have higher growth prospects.”
J.P. Morgan made this recommendation after the Fed’s September cut, as non-cash assets started to rally. Morgan still advises investors to anchor their portfolios in U.S. stocks, but international investments provide additional balance. It recommended Europe and emerging-market economies, which are currently transitioning to “developed” status.
The Final Word From ChatGPT
Although a rate cut offers opportunities, ChatGPT noted that gains are not guaranteed. It cautioned: “Always consider your time horizon, risk tolerance and investment goals, and consult a financial advisor for personalized advice.”
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This article originally appeared on GOBankingRates.com: I Asked ChatGPT the Best Investments To Make After the Fed Rate Cut — Here’s What It Said
