Investors have been anticipating further rate cuts this year, but history shows those expectations might have been overly optimistic. Will we finally see a cut this September?

 

This morning, optimism around a Fed cut partly fueled a rally in small caps and the healthcare sector, two areas that have lagged much of the year.

 

But not every rally is worth chasing. We’re still being selective. As we’ve always said, not every stock is created equal. More importantly, not every stock benefits when the Fed changes course.

 

📺 Watch Brooke May, CFP®’s CNBC interview to learn what investors should really be watching. Full interview also available on CNBC’s website here.

 

 

Transcript:

We’re diving into the markets with one of Forbes Top Women Financial Advisors*. Brooke May of Evans May Wealth on why she thinks a year-end rally is in store. That’s next. So, the rotation trade continues, with investors pouring into some of the underperformers this year. Take UnitedHealth. It’s down 40% this year, still—but now one of the top winners in the Dow so far for this month.

It’s up 22% for August. Our next guest sees opportunity in the stock and says investors should buy. Joining us now is Brooke May, partner at Evans May Wealth. She is also on CNBC or on Forbes Top Women Advisors list. And Brooke, it’s great to have you back on the show. Welcome. Thank you, Morgan. As a former Forbes alum here—a little slip of the tongue there.

UnitedHealth. Why do you think this is a buy right now?

If you look to your point, it’s down 40% year-to-date and down 50% from the all-time high. Last week, though, we heard that Warren Buffett took a 5-million-share stake, which equates to about $1.6 billion. So, we think that this is a good buying opportunity.

The stock’s trading at about 18 times forward earnings. And historically it’s been very well managed. So, we think if you’re patient it’s an area that you could make money in the months to come. It’s interesting, too, because it isn’t just UnitedHealth.

Healthcare as a sector is a top performing one in the S&P this month.

And it sort of speaks to this big rotation we’ve been talking about. Healthcare’s been beaten up. It hasn’t been a good investment until just recently. And health care is resilient. It won’t stay down forever. And so, we do think that if you’re selective, there are some good buying opportunities right now.

What do you think of tech?

We like tech. We think we’re in a megatrend when it comes to tech. However, in the near term we think it’s overbought. So, we follow the earnings. We think tech is where the earnings growth is going to be. We think it’ll lead us into 2026 with strong earnings growth. We think earnings could be up 12% next year. However, in the near term, it’s overbought. So, we’re looking at other areas of the market and being a little more selective.

We know we’re in a very seasonally weak time of the year where you tend to see volatility. To your point, some of the high-flying parts of the market continue to look a little bit overbought. And you’re seeing some profit taking right now.

If we continue to see a pullback here, is it a buying opportunity or you just sit on your hands?

I would be patient. September October tend to be volatile months in the market. And I don’t know that this year will be any different. We’ve had a parabolic move since April, and when you look, the question is: what’s the catalyst going to be for a pullback? We’ve seen weakening labor data in addition to higher inflation than expected. And right now, the market’s pricing in about a 73% probability that we’ll see a rate cut in September. And if that doesn’t come to fruition, you can expect volatility to kick up.

Do you think we get a cut from the Fed next month? And how much does that matter?

You know, I think if you look back the last few years, the market’s been overly optimistic on the number of rate cuts that we would get and they haven’t materialized.

This year might not be any different. We might only see 1 or 2 rate cuts if we get a rate cut in September. I don’t know that we’ll get another one before year-end, if the labor market holds up. Just recently, the majority of fed governors have indicated that inflation is a bigger risk than the labor market right now.

And so, if you look at the most recent CPI rating at 3.1%, that’s a lot higher than expected. And so, I wouldn’t be surprised, if the labor market holds up, if the Fed pauses in September.

Russell 2000 actually finished the day fractionally higher. And while it’s on pace for a weekly loss, like all the other major averages, it is the outperformer so far this month.

Is this on Fed rate cut expectations or is something else afoot here?

I think there are a lot of factors at play. You know, small cap has been out of favor for some time now. Those companies rely heavily on debt and with variable-rate debt being at higher rates, it cuts into their profit margins. So, they need a rate cut to really stimulate their profit margin and their revenue and earnings, or their earnings growth. It might be a little too soon, though. You know, I would be patient. We’re hesitant to move into small cap in a meaningful way right now.

Biggest risks to this market?

The labor market. Everything hinges on the consumer right now. And if the consumers have jobs, they’re going to spend. And, you know, we’re seeing some softening there. All that said, when you listen to CEOs in the most recent survey, 66% are keeping their projections for their workforce at least stable—if not expanding it—over the next year.

And when you talk to them about what they’re looking for to combat higher input costs, they’re leveraging technology. They’re upskilling their labor force. They’re looking at aggressively negotiating with their suppliers, and they’re going to pass a little bit of those higher costs on to consumers.
So, there are 7.4 million job openings right now. However, with the upskill of labor, there isn’t always a match between unemployed and the job openings. So, we think we’re in an environment that’s slow to hire, slow to fire. We expect the labor market to stay afloat, but we could see one or two-tenths of a point higher in unemployment.

Okay. We’ll watch for that. Brooke May, great to have you on, as always. Thank you.

 

*Forbes Top Women Wealth Advisors Best-In-State (2018, 2019, 2022, 2023, 2024, 2025), created by SHOOK Research. Most recently presented Feb 2025 based on data gathered from 9/30/23 – 9/30/24. No fee was paid to be included in the ranking. Not indicative of advisor’s future performance. Your experience may vary.