The Fed’s pivot signals the start of a new market cycle
It is one where the US is no longer the only game in town
AT THE Jackson Hole Symposium on Aug 23, US Federal Reserve chair Jerome Powell acknowledged what markets had long suspected: the labour market is softening, and a September rate cut is now widely expected. His dovish tone ignited a late-week surge across Wall Street, with the Dow closing at a record high and the S&P 500 and Nasdaq rallying nearly 2 per cent. Bond yields fell, and the US dollar slumped as traders priced in an 87.3 per cent chance of imminent policy easing.
As highlighted in Syfe’s H2 Market Outlook, rate-sensitive sectors, such as bonds and real estate investment trusts (Reits), are primed to benefit as monetary policy turns supportive. But the real story lies beyond the Fed. The US dollar’s decline has become one of the defining macro themes of 2025. For global investors, this matters: Weaker greenback returns raise the bar for US equities, while creating fertile ground for non-US markets.
Already, the tide has shifted. For the first time in years, international equities outpaced their US counterparts by more than 10 percentage points in the first half of 2025. This is not just a fleeting rotation; it’s the opening act of a very different market cycle. One where the US is no longer the only game in town.
A softer US dollar historically channels capital into emerging markets, and emerging Asia is particularly well-placed to benefit, with compelling valuations and resilient growth dynamics. For investors in Singapore, the message is clear: Avoid US-centric tunnel vision. A balanced strategy is key – blending exposure to Asia’s resilience, emerging market equities, income-generating assets such as Singapore real estate investment trusts (S-Reits) and quality bonds, alongside defensive allocations to gold.
Rate cut bets will dominate headlines in the weeks ahead. But the real opportunity belongs to those who look beyond the Fed and position portfolios for a multipolar world of growth and income.
Seize opportunities beyond US equities
As yields fall, bond prices rise, delivering capital gains alongside income. This is welcome news for income-focused investors after years of lean yields, but rising asset prices are not an all-clear signal for the economy.
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With short-term interest rates due to fall and long-term interest rates remaining anchored, short and intermediate duration investment-grade bonds remain the most resilient option. For Singapore investors, favouring global bonds including local government debt especially in emerging markets adds another layer of protection at a time when the US dollar is under pressure.
Beyond bonds, dividend-paying equities and S-Reits also regain appeal in a falling-rate environment as income streams look more attractive compared to lower risk-free yields. But this is where discernment is crucial. Investors should prioritise companies with strong balance sheets, conservative payout policies, and resilient business models, avoiding sectors that are more exposed to leverage or cyclical downturns if growth slows.
S-Reits are particularly well-positioned. Historically, they have outperformed when rates decline because income yields become more appealing and borrowing costs fall, increasing distributable income and potentially enabling higher dividends.
However, not all S-Reits are created equal. Investors should look beyond the headline yields and employ a diversified strategy. Major SGX S-Reit indices allow you to invest in the largest, most-liquid blue-chip S-Reits demonstrating high occupancy rates in quality properties with prudent leverage ratios and backed by reputable sponsors. Regulatory developments introduced by the Monetary Authority of Singapore in late 2024 have also further enhanced the S-Reits sector’s resilience by giving managers greater flexibility in capital management while preserving prudent borrowing standards.
Another attention-worthy area is emerging market equities. These tend to outperform developed markets when the US dollar weakens, benefiting from currency tailwinds and renewed capital flows. For Singapore investors, adding measured exposure to emerging market equities alongside S-Reits and high-quality bonds can help capture both yield and growth, while maintaining balance in a more uncertain global economy.
Practical moves for Singapore investors in a changing landscape
Given the shifting monetary policy and mixed signals beneath market optimism, a diversified approach is essential. While rate cuts typically support asset prices, the fundamental driver – a softening labour market – warrants caution. Investors should avoid sudden or large shifts, opting instead for gradual portfolio adjustments while maintaining flexibility for potential volatility.
Singapore’s stock market is dominated by banks, which make up over half the Straits Times Index. While banks may benefit in the near term from a stable domestic environment and still-elevated interest margins, relying too heavily on them increases concentration risk. Incorporating S-Reits alongside high-quality bonds can provide capital stability and a more balanced income source.
In periods of monetary policy inflection, such as a Fed pivot, it may also be worth introducing a small allocation to gold as an additional defensive anchor. While it does not generate income, gold tends to sustain its value when interest rates fall and the US dollar softens – both likely outcomes of a rate-cutting cycle. Gold’s lack of correlation with equities and bonds means it can help reduce overall portfolio volatility during episodes of market stress.
Building a pragmatic portfolio
As an illustrative example, a viable non-US portfolio structure for Singapore investors in this environment might look something like 30 per cent allocation to emerging market stocks for growth opportunities, 30 per cent to S-Reits and banks for balanced growth with income, another 30 to 35 per cent in high-quality bonds for predictable income, and 5 to 10 per cent in gold as a defensive buffer. This blend seeks to provide a balanced mix of growth, yield, and downside protection – three elements that will likely be tested as monetary policy shifts and economic uncertainty persists.
Regular portfolio reviews are crucial to monitor sector and credit exposures, and extra attention to credit quality can help mitigate risks, especially when economic headwinds may impact earnings. Above all, investors should resist chasing high yields in speculative areas, focusing instead on capital preservation and sustainable income generation.
A Fed rate cut regime often boosts bond prices and income-focused stocks, including S-Reits. However, this is not a given. The current environment is nuanced, with early signs of economic softness underlying market optimism. In this setting, investors should prioritise assets with genuine value, resilient cash flows, and prudent capital management. Singapore investors who diversify with local and global investments, maintain discipline, and make gradual rebalances will be best positioned to navigate both the opportunities and risks ahead.
The writer is managing director, head of investment and advisory at Syfe
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