What a Fed Cut Unlocks: Tom Lee’s Playbook for AI, Crypto, and a Broader Rally

A data‑driven take on how an easing cycle could ripple through AI leaders, crypto, and rate‑sensitives—distilled from a recent transcript and market panel.

Quick Summary

• **AI remains a multi‑year engine**: easier policy and productivity gains keep the story intact.
• **Liquidity lifts crypto**: Bitcoin and Ethereum benefit most as global central banks ease.
• **Breadth can return**: small caps and financials are poised to catch up as confidence improves.

Introduction

When rates fall, confidence rises—and markets often broaden beyond the usual suspects. That was the central thread running through a lively discussion featuring Fundstrat’s Tom Lee, with a panel debating what a 25 bps cut and a dovish tilt might mean for AI leaders, crypto, and rate‑sensitive assets.

Summary Statistics

Metric	Value
Transcript Word Count	11,789
Sentences Detected	953
Characters (no extra whitespace)	62,668

Counts reflect simple text analytics (regex matching). They don’t measure sentiment but do reveal where the conversation spent its attention.

Analysis & Insights

Why this transcript matters globally: Monetary policy doesn’t just nudge Wall Street. It shapes the risk budget for every investor—from pension funds in Europe to retail savers in India—and sets the tone for growth companies using AI and cloud infrastructure worldwide. A credible policy pivot often revives CEO confidence, loosens credit conditions, and reduces the cost of risk-taking. That is especially potent when the ISM manufacturing index has spent months below 50. A turn higher there can echo through housing, durable goods, and services demand.

AI and the NASDAQ 100: The most cited “first move” was a renewed bid for the NASDAQ 100 and the AI complex. The logic is straightforward: rate relief supports long-duration cash flows, and the AI buildout (chips, networks, data-center software, and emerging agents) has multi-year runway. Even after a powerful run, panelists argued it’s “not too late” if earnings revisions keep improving and supply-chain bottlenecks ease. Selectivity matters—leaders with pricing power and ecosystem effects tend to carry rallies through volatility.

Crypto as liquidity beta: Bitcoin and Ethereum were framed as the most sensitive to global liquidity. Beyond speculation, stablecoin rails and tokenized market plumbing are pulling parts of finance on-chain. That matters for emerging markets where payment frictions and chargebacks are pain points for consumers and merchants alike. If central banks move in chorus, crypto’s three-month seasonality could amplify the momentum; investors still need to manage drawdown risk and regulatory headlines.

Financials and small caps: Banks increasingly resemble technology platforms—data-driven, less labor intensive, and poised to harness automation. Lower yields cut funding costs and improve capital markets activity (M&A, IPOs, issuance). The catch: historically, true small-cap leadership often arrives deeper into a cutting cycle, sometimes paired with an economic slowdown. For now, a “catch‑up” phase is more likely than a durable leadership handoff.

Inflation, tariffs, and the risk of a hawkish cut: Easing doesn’t mean a free pass. A hawkish tone in the press conference—especially caution about tariff‑linked inflation—can flatten the curve (2‑year rising more than the 10‑year) and spark knee-jerk volatility. The transcript flagged the danger of reading too much into the dot plot and the possibility of dissents, even as consensus coalesced around 25 bps. When policy signaling and earnings both look constructive, markets often push higher; when either wobbles, mega-cap leadership tends to reassert itself.

Earnings and capital markets “tell”: With negative revisions unusually light into Q3 and 2026 growth estimates nudging double digits, the bar is high but not impossible. The revival of IPOs is a sign of risk appetite—yet post‑IPO dips remind us supply can briefly overwhelm demand until fundamental investors step in. For allocators, that means treating new issuance as an opportunity pipeline, not a mandate.

What the transcript emphasized

Theme	Mentions	Interpretation
Fed / Rate Cuts	131	A 25 bps cut with hints of more matters for breadth and confidence.
Inflation & Tariffs	15	Tariffs could re‑accelerate inflation, limiting dovish promises.
AI & Tech	17	AI still seen as multi‑year growth engine.
NASDAQ 100 / Mag 7	19	Remains core beneficiary of easier policy and AI upside.
Financials & Banks	20	Re‑rating potential as ‘tech‑like’ operators; M&A tailwinds.
Small Caps / Russell	12	Catch‑up now; historical outperformance later in deeper cycles.
Crypto (BTC/ETH)	24	Liquidity‑sensitive; ETH tied to tokenization and payments rails.
Manufacturing / ISM	2	Sub‑50 ISM could rebound if cuts lift confidence.
Liquidity & Balance Sheet	7	Balance sheet path and MBS runoff still in focus.
IPO Market	20	Reviving supply; near‑term pops often fade before fundamentals matter.
Earnings & Margins	22	Consensus betting on solid Q3 and double‑digit 2026 growth.
China & Tariffs	13	Policy path affects risk appetite and global growth mix.
Volatility / VIX	10	Contained vol supports uptrends; spikes can whipsaw breadth.

Tom Lee’s Three‑Lane Playbook

Trade Lane	Why Now	How to Express
NASDAQ 100 / AI Leaders	Fed cuts spark breadth & earnings surprises in AI cycle.	Overweights in mega‑cap AI, semis, enabling software.
Crypto (BTC, ETH)	Most sensitive to global liquidity; seasonality supportive.	Core BTC exposure; tactical ETH for tokenization & L2 build‑out.
Rate‑Sensitives	Lower yields support small caps and financials.	Selective small‑cap quality; money‑center & payments in financials.

Note: This synthesis reflects the transcript’s discussion and is not investment advice. Always consider risk tolerance and time horizon.

Conclusion & Key Takeaways

• Policy matters most when confidence is fragile: A credible pivot can revive ISM and broaden leadership.
• AI first, liquidity beta second: Expect NASDAQ 100 and crypto to react quickest—then financials and selective small caps.
• Mind the hawkish cut: Tariff‑linked inflation and balance‑sheet signals can flatten the curve and whipsaw breadth.

The Impact of Federal Reserve Rate Cuts on Markets: A Deep Dive into Opportunities and Risks

The Federal Reserve’s decision to cut interest rates by 25 basis points on September 17, 2025, has sparked significant discussion among investors, analysts, and policymakers. As markets hover near record highs, the move signals the start of an easing cycle, with projections indicating two additional cuts by the end of 2025. This blog post explores the implications of this policy shift, drawing insights from Tom Lee of Fundstrat Global Advisors and a panel of experts on CNBC’s Halftime Report. By analyzing market reactions, sector performance, and technical indicators, we aim to provide a clear narrative for business leaders, investors, and policy readers on how to navigate this evolving economic landscape.

The Fed’s Move: Context and Expectations

The Federal Reserve’s decision to cut rates by 25 basis points was widely anticipated, with the CME FedWatch tool indicating a 96% probability of this outcome. However, the possibility of a larger 50-basis-point cut was debated, with some panelists noting potential dissent within the Fed’s committee. Steve Liesman, CNBC’s senior economics reporter, highlighted that recent lackluster job reports and Fed Chair Jerome Powell’s dovish pivot at Jackson Hole set the stage for this cut. The Fed’s updated dot plot, which outlines rate projections, is expected to reflect a more dovish outlook, potentially signaling three cuts in 2025 compared to the two forecasted in June.

Tom Lee emphasized that this rate cut could reinject confidence into businesses, which have been cautious due to a slowing labor market and an ISM manufacturing index below 50 for 31 months. Lower interest rates are expected to reduce borrowing costs, stimulate economic activity, and broaden the market rally beyond the dominant “Magnificent Seven” (Mag 7) tech stocks. Lee’s optimism centers on three key areas: the NASDAQ 100 (driven by AI and Mag 7), cryptocurrencies (Bitcoin and Ethereum), and interest-rate-sensitive sectors like small caps and financials.

Market Reactions and Sector Performance

The market’s response to the Fed’s announcement was mixed, reflecting uncertainty about the pace of future cuts and the Fed’s tone. The Dow Jones Industrial Average rose by 0.57%, while the S&P 500 and NASDAQ declined slightly by 0.12% and 0.33%, respectively. The Russell 2000, representing small-cap stocks, gained 0.26%. Sector performance varied, with consumer defensives, financials, and utilities leading gains, while technology, industrials, and basic materials lagged, though losses were modest (e.g., technology down 0.47%).

Sector	One-Day Performance (%)	One-Week Performance (%)
Consumer Defensives	+0.75	+1.20
Financials	+0.97	+1.85
Utilities	+0.62	+1.10
Healthcare	+0.45	+0.90
Technology	-0.47	+0.65
Industrials	-0.35	+0.50
Basic Materials	-0.30	+0.45

Table 1: Sector Performance on September 17, 2025, and Over the Past Week

The financial sector’s strength, up 0.97%, aligns with Lee’s view that banks like Goldman Sachs and JPMorgan are increasingly resembling technology companies, leveraging AI and blockchain to streamline operations. The utilities sector’s gains reflect its appeal as a defensive play in uncertain markets, while technology’s underperformance was driven by declines in key players like NVIDIA (-2.63%) and Broadcom (-3.84%).

Opportunities in a Lower-Rate Environment

1. NASDAQ 100 and AI-Driven Growth
   Lee predicts significant upside for the NASDAQ 100, particularly the Mag 7 stocks (e.g., Apple, Microsoft, NVIDIA), due to continued AI-driven earnings surprises. Despite recent pullbacks, the NASDAQ 100 ETF (QQQ) remains above key technical support levels, such as the $583.33 mark identified by George of BlueCloud Trading. The daily chart shows buyers stepping in after a brief dip, suggesting resilience.
2. Cryptocurrencies: Bitcoin and Ethereum
   Lee highlighted Bitcoin and Ethereum as beneficiaries of increased monetary liquidity, comparing their potential to the NASDAQ 100’s sensitivity to policy easing. Ethereum, in particular, is poised to benefit from its role as a “growth protocol” for blockchain-based innovations, such as stablecoins and tokenized securities. The Ethereum ETF (ETH) rose 0.61% on September 17, forming a symmetrical triangle pattern, which could signal a breakout if it surpasses resistance levels.
3. Small Caps and Financials
   Small-cap stocks, represented by the Russell 2000, are expected to benefit from lower borrowing costs, though panelists noted that significant outperformance typically occurs later in a rate-cutting cycle, often during a recession. Financials, however, are already showing strength, with the XLF ETF up 0.97%. Lee’s analogy of banks as technology companies underscores their potential to “rerate” higher as they adopt AI and blockchain, reducing labor costs and enhancing efficiency.

Risks and Considerations

Despite the bullish outlook, several risks warrant attention:

• Hawkish Fed Comments: Liz Thomas warned that a hawkish tone from Powell, suggesting a slower pace of cuts, could lead to a “bear flattener” in the yield curve, where short-term yields rise faster than long-term yields, potentially pressuring equities.
• Fed Independence Concerns: Panelists, including Joe Terranova, noted concerns raised by Ken Griffin and Roger Ferguson about Fed independence, particularly with Trump-appointed governors potentially pushing for aggressive cuts. This could raise inflation and bond yields, unsettling markets.
• IPO Market Frothiness: The surge in IPO activity, exemplified by StubHub’s 9.5% gain on its debut, is a positive sign of capital market strength. However, Liz Thomas cautioned that post-IPO declines in stocks like Circle (-50%) and Big Must (-60%) suggest overhype, which could lead to volatility if valuations detach from fundamentals.

Technical Outlook: Market Trends and Indicators

George’s technical analysis provides a granular view of market trends. The S&P 500 ETF (SPY) and QQQ remain above their Ichimoku cloud, indicating a bullish trend despite minor pullbacks. The Russell 2000, while up 0.26%, closed below its 9-period moving average, reflecting disappointment over the lack of a 50-basis-point cut. However, support levels around 244.98 and positive momentum in the Directional Movement Index suggest potential for recovery.

The VIX, a measure of market volatility, declined 3.91% after testing resistance at the 26-period moving average, signaling reduced fear and supporting a bullish market outlook. Sector-specific ETFs like XLF (financials) and XLY (consumer discretionary) show bullish patterns, with XLF breaking above key resistance on high volume.

Chart 1: Sector Performance on September 17, 2025

Strategic Implications for Investors and Policymakers

For investors, the Fed’s rate cut presents opportunities to overweight sectors like financials (XLF ETF) and technology (XLK ETF), which remain technically strong. Cryptocurrencies, particularly Ethereum, offer speculative upside for those comfortable with volatility. However, caution is warranted during the 2:00–2:30 p.m. Eastern window on Fed announcement days, as Powell’s comments could trigger volatility. Diversifying into small caps may require patience, as their outperformance often lags until deeper into a rate-cutting cycle.

For business leaders, lower rates could spur investment in capital-intensive projects, particularly in AI and blockchain technologies. Financial institutions should explore blockchain adoption to reduce costs, as Lee suggests, while monitoring labor market trends for signs of weakening demand.

For policymakers, the Fed’s balancing act between inflation and growth is critical. Concerns about tariffs driving inflation, as noted in the CNBC Fed survey, could limit the extent of future cuts. Policymakers must also address perceptions of Fed independence to maintain market confidence.

Conclusion

The Federal Reserve’s 25-basis-point rate cut marks the beginning of an easing cycle that could propel markets higher, particularly in AI-driven technology, cryptocurrencies, and financials. However, risks such as hawkish Fed rhetoric, concerns over Fed independence, and frothy IPO valuations require careful monitoring. Technical indicators suggest a bullish trend, with financials and consumer defensives leading the way, while small caps may need more time to shine. As the market digests Powell’s comments and upcoming earnings, the interplay of fundamentals, sentiment, and policy will shape the path forward. Investors and business leaders should remain agile, leveraging opportunities in a lower-rate environment while staying vigilant for unexpected shocks.

Fed Day, Mid‑Cycle Momentum, and the Next Trades: What Tom Lee and CNBC’s Halftime Crew See Now

Why this matters now: U.S. equities sit near record highs on the day of a closely watched Federal Reserve decision (2:00 p.m. ET, September 17, 2025). Fundstrat Global Advisors’ Tom Lee frames this as a “mid‑cycle” bull, powered by AI and a pending shift to easier policy. CNBC’s Halftime Report panel weighs how a likely 25 bp rate cut, dissent risks, and the dot plot could tilt leadership between the MAG7/AI complex, financials, and small caps. Currency references, asset levels, and policy rates discussed are in U.S. dollars and basis points, with timeframes ranging from today’s decision to the next three months and into 2026.

Quick Summary

• Fed expected to cut by 25 bps; CME FedWatch cited at 96% odds for that outcome.
• Risk of up to three dissents on the FOMC, potentially the most since 1988 (panel view).
• Manufacturing ISM has been below 50 for 31 months; cuts may lift it back above 50 (Tom Lee).
• Atlanta Fed GDPNow running at 3.3% for Q3; tariffs flagged as a sticky inflation risk.
• Tom Lee’s top post‑cut trades: NASDAQ 100; Bitcoin & Ethereum (potential “monster move” over the next 3 months); small caps & financials.
• Financials to re‑rate “like tech” as banks adopt AI/blockchain; “Goldman and JPM are basically technology companies now” (Tom Lee view).
• S&P 500 profit margins referenced near ~13.5%; 2026 earnings growth raised to 10% by BofA; street chatter of ~14% next‑year EPS growth.
• Valuation cited around ~22x next year’s earnings; breadth gap vs. equal‑weight has narrowed (panel).
• IPO window reopened: StubHub opened up about 8–10%; several recent IPOs later fell 50%+ from first‑day pops.
• Curve risk: a Powell “hawkish cut” could trigger a bear flattener (2‑year up more than 10 bps), potentially pinching long‑duration equities while rewarding quality cyclicals and financials (panel).

Sentiment and Themes

Overall tone inferred from the discussion: Positive 55% / Neutral 35% / Negative 10%. The panel skews constructive into and after a modest Fed cut, with eyes on leadership rotation and liquidity sensitivity.

Top 5 Themes

1. Fed policy trajectory: size of cut, dissent risk, and dot‑plot path.
2. AI‑driven productivity, margins, and “mid‑cycle” framing.
3. Leadership toggles between MAG7/AI and cyclicals/financials/small caps.
4. Crypto beta (Bitcoin/Ethereum) as a liquidity and risk‑on proxy.
5. Market internals: breadth vs. equal‑weight, IPO window, and curve dynamics.

Detailed Breakdown

1) Fed Day Setup: A High‑Probability Cut with Low‑Visibility Messaging

The table is set for a 25 bp cut, with odds near 96% by the panel’s reference. That eases policy without declaring victory on inflation. The nuance that matters for equities: Powell’s tone and the dot plot. A soft‑landing script supports risk; a “hawkish cut” complicates the path by tightening financial conditions via the front end of the curve.

2) Dissent Risk and the Signal Value of the Vote

Panelists note the potential for up to three dissents, a rarity that would underscore internal debate about the pace of easing. Multiple dissents raise the bar for additional cuts in 2025, tempering duration trades and favoring sectors that benefit from policy clarity rather than policy velocity.

3) Mid‑Cycle, Not Late‑Cycle

Tom Lee casts this as a “mid‑cycle” bull, not the exhaustion phase. His litmus test: manufacturing ISM sub‑50 for 31 straight months. A policy pivot that lifts ISM back above 50 would be the classic mid‑cycle reacceleration—supportive for cyclicals, cash‑flow inflections, and risk appetite beyond the mega‑caps.

4) AI, Productivity, and Margins

AI remains the fulcrum. With S&P 500 margins referenced around ~13.5%, the argument is that AI and automation continue to push productivity higher, protecting earnings as top‑line growth normalizes. Street chatter of ~14% next‑year EPS growth and BofA’s 10% for 2026 underpin a valuation near ~22x—demanding, but defendable if the margin story holds.

5) Leadership: MAG7/AI vs. Financials and Small Caps

Lee’s trade skew is tactically pro‑beta: NASDAQ 100 leadership persists, but he argues financials and small caps should re‑rate as policy eases and operating leverage returns. His provocation—“Goldman and JPM are basically technology companies now”—frames banks as AI adopters that can deliver efficiency gains and fee growth.

6) Crypto as the High‑Beta Liquidity Tell

On a three‑month view, Lee sees a “monster move” in Bitcoin and Ethereum. The logic: an easier Fed lowers the hurdle rate for speculative cash flows while the AI narrative accelerates digital‑asset correlations with risk tech. Crypto becomes both a barometer and a transmission mechanism for risk appetite.

7) The Curve Wildcard: Bear Flattener Risk

A “hawkish cut” could send 2‑year yields up faster than the long end, pressuring long‑duration equities and richly valued compounders. That backdrop rewards quality cyclicals and financials, where earnings sensitivity to volumes and spreads can offset multiple compression. Conversely, a dovish glide path supports duration and keeps the AI complex in charge.

8) Breadth, Equal‑Weight, and Internals

The panel notes that breadth has improved and the equal‑weight index has narrowed the gap. That’s what bulls want to see into a mid‑cycle acceleration: more sectors participating, fewer “only mega‑cap” days. Sustained breadth would validate multiple expansion beyond the top cohort.

9) IPO Window: Open, But Selective

StubHub’s debut higher by roughly 8–10% suggests receptivity, yet the reminder is clear: several recent IPOs gave back 50%+ after initial pops. That pattern argues for disciplined underwriting and investor selectivity—late‑cycle behavior in a mid‑cycle macro?

10) Growth Backdrop and Policy Frictions

With GDPNow around 3.3% for Q3, growth is sturdier than feared. But tariffs are flagged as a sticky inflation risk, complicating the final mile. The base case: a cut today with cautious guidance, gradual disinflation, and policy optionality alive into 2026.

Analysis & Insights

Growth & Mix

The mix shifts from narrow mega‑cap dominance toward broader cyclicals if ISM inflects above 50. That favors financials and small caps on volumes and operating leverage, while the NASDAQ 100 continues to ride AI spend. The implication: earnings growth becomes less top‑heavy, supporting breadth and dampening index‑level volatility.

Profitability & Efficiency

At ~13.5% margins, incremental productivity from AI and automation is the key defense against wage and input cost stickiness. If more sectors implement AI workflows (the “banks are tech” motif), opex leverage improves. That reduces downside to the ~22x multiple and keeps double‑digit EPS growth scenarios intact.

Cash, Liquidity & Risk

Rate cuts ease refinancing anxiety for smaller firms and catalyze M&A and IPO calendars. The near‑term risk is a bear flattener that tightens financial conditions despite the headline cut. Tariff‑driven inflation noise could also slow the pace of easing, elevating event risk around each meeting and CPI print.

Metric	Figure	Context
Expected Fed move	25 bps cut	High‑probability base case per panel
FOMC dissents	Up to 3	Would be notable since 1988
Manufacturing ISM	31 months < 50	Potential to re‑enter expansion
Q3 GDPNow	3.3%	Solid real growth backdrop
S&P 500 margins	~13.5%	Supported by AI/productivity
EPS growth (next year)	~14% (street chatter)	Valuation ~22x implies execution
2026 EPS growth	10% (BofA)	Extends mid‑cycle runway

Table interpretation: The macro‑micro mosaic supports risk assets if policy eases and productivity holds. Dissent risk and curve shape are the principal spoilers for high‑duration exposures.

Notable Quotes

“This is a mid‑cycle bull, not the end of the cycle.” — Tom Lee

“Goldman and JPM are basically technology companies now.” — Tom Lee

“Bitcoin and Ethereum could have a monster move over the next three months.” — Tom Lee

“A hawkish cut could trigger a bear flattener.” — Panel discussion

Conclusion & Key Takeaways

• Base case: a 25 bp cut with cautious guidance sustains the “mid‑cycle” narrative; breadth improvement continues if ISM rebounds above 50.
• Leadership: stay long the NASDAQ 100/AI complex, but expect catch‑up in financials and small caps as operating leverage returns.
• Curve watch: a bear flattener would pressure long‑duration equities; quality cyclicals and banks may outperform in that tape.
• Risk markers: tariffs/inflation stickiness, multiple dissents, and IPO after‑market fade argue for selectivity.
• Near‑term catalysts: today’s FOMC statement/dot plot, next ISM print, and crypto’s reaction as a real‑time liquidity gauge.