Rate Cut Expectations in 2026: Which Sectors and Stocks Could Rally if Trump Gets His Way?

The Fed Decision Today and Tomorrow: What’s Really at Stake?

The burning question in financial markets right now is whether the Federal Reserve will continue its rate-cutting cycle in 2026. President Trump has made his position crystal clear—he wants lower interest rates, and soon. Meanwhile, traders are currently pricing in two additional rate cuts before the end of the year, setting up what could be a significant policy shift if inflation and employment data cooperate.

The real power struggle, however, centers on the Fed’s decision-making process. Fed Chair Jerome Powell’s term ends in May, which means Trump will have the opportunity to reshape the central bank’s leadership. Yet even with potential leadership changes ahead, the Federal Open Market Committee (FOMC) remains the ultimate arbiter of monetary policy. Recent meetings have shown increasing divisions within the committee, suggesting the path to lower rates isn’t guaranteed.

When Will Rate Cuts Actually Materialize? The Economic Conditions That Matter

Here’s what the Fed actually cares about: Jobs and inflation. Don’t get distracted by political rhetoric. The FOMC will base its decisions on hard economic data, not wishes.

For more rate cuts to materialize, one or both of these conditions need to be met:

Labor Market Deterioration: If unemployment starts rising and job creation slows, the Fed will feel pressure to cut rates to support employment. Currently, the labor market remains relatively resilient, which is actually a headwind for rate-cut advocates.

Inflation Control: The Fed’s target is 2% inflation. If price pressures remain sticky and above target, rate cuts become politically and economically difficult to justify. Recent data suggests inflation, while improving, isn’t falling as rapidly as some hoped.

If both of these factors align—weaker jobs combined with contained or declining inflation—then 2026 could indeed see the rate cuts Trump is pushing for. This is where the real opportunity for equity investors lies.

The Clear Winners: Industries That Thrive When Rates Fall

Real Estate and Mortgage Services

The mortgage industry stands to gain significantly from a lower-rate environment. While Fed rate cuts don’t automatically translate to lower mortgage rates immediately, they typically move in the same direction over time. With home affordability at crisis levels due to elevated home prices and steep borrowing costs, lower rates could unlock pent-up demand.

Compass (NYSE: COMP) represents one play on this potential recovery. As the nation’s largest residential real estate brokerage, Compass is undergoing a transformative acquisition of Anywhere Real Estate, absorbing major brands like Coldwell Banker, Century 21, and Corcoran. This deal consolidates a fragmented industry, eliminates a significant competitor, and positions Compass to offer enhanced support services for brokers. If housing demand rebounds on the back of lower rates, a combined Compass-Anywhere entity could capture substantial market share gains.

Financial Services and Banking

Banks represent another obvious beneficiary. Paradoxically, while lower rates can compress net interest margins (what banks earn from lending), they also stimulate economic activity. More lending, more trading, and more investment banking activity follows. Additionally, lower rates can help banks clean up their balance sheets—many hold underwater longer-dated bonds purchased at higher yields.

Bank of America (NYSE: BAC) fits this profile well. With one of the largest U.S. consumer lending franchises combined with a robust investment banking division, BAC is positioned to benefit from both the volume increases and the potential relief on its bond portfolio. Should rates fall, some of those underwater securities could recover value, potentially allowing the bank to reclassify holdings and improve reported earnings.

The Timing Question: Will 2026 Actually Deliver?

The path isn’t guaranteed. The Fed’s decision today and all future decisions hinge on data, not politics. Traders are betting on cuts, but markets have been wrong before. If inflation resurges or the labor market weakens faster than expected in an destabilizing way, the Fed could hold steady or even signal future hikes.

For investors considering exposure to rate-sensitive sectors, patience and selectivity matter. Not every company will benefit equally. Quality matters—firms with strong balance sheets, competitive advantages, and reasonable valuations will outperform those that don’t.

The conversation around lower rates and their market implications will likely intensify throughout 2026. Keep watching the economic data releases, Fed communications, and how traders are positioning themselves. That’s where the real edge lies.