4Q 2025 Outlook | Trump 2.0 - Impact of Fed Rate Cuts

As head into the final quarter of 2025, concerns over tariffs seem to have faded in the background as the US Federal Reserve (Fed) lowered its benchmark rates to a range between 4.0% and 4.25% at its September policy meeting. 

With the market expecting the US Federal Reserve ("Fed") to continue initiating rate cuts for the rest of the year, this edition of the CIMB Market Outlook explores investment implications of lower US rates on the US dollar, Fixed Income assets as well as US and Asian equities.

The Impact of Rate Cuts on the US Dollar

While the US Dollar Index (DXY) has dropped approximately 10% YTD, downward pressure on the DXY is expected to continue in the near terms as the Fed is expected to cut rates by a larger magnitude relative to other central banks over the next months.

While the downward momentum on the DXY should continue, the decline is likely to be less dramatic than those witnessed earlier this year. We expect investors will continue to seek alternatives to USD-denominated assets as they look to diversify their portfolios.

Equities: US Moderates as Asia Experiences a Renaissance

The global shift in monetary policy is reshaping equity opportunities, creating a dichotomy between high US valuations and compelling Asian growth.

• US Equities: Despite the S&P 500 reaching new all-time highs, market consensus points toward a moderation of earnings in the second half of 2025. We recommend a selective approach, focusing on businesses with sustainable balance sheets. Consider buying on market dips, and we advise caution against being too heavily tilted toward technology.
• Asian Equities: In our 3Q25 outlook, we proposed that Asian markets look primed to be a beneficiary of investor inflows due to a weakening USD. We’ve seen that hypothesis play out and maintain that Asia offers compelling opportunities, particularly in China and Singapore. 

China looks set to gain as it broadens its trade partnerships, with structural tailwinds like AI and strong fund flows poised to strengthen market performance.

Singapore remains an appealing choice. The Straits Times Index has delivered strong returns YTD, and the country’s safe-haven reputation has attracted flows with market reforms underway to promote greater activity on the Singapore Exchange.

Our Key Takeaways

In the final stretch of the year, we continue to reiterate the call on income and dividend-paying strategies in a globally diversified portfolio.

• Increase in Asset Allocation Towards China: We have reduced our cash position and increased our position in China equities to aggressively capture growth opportunities reflecting our views on Asia's emergence as a key beneficiary.
• Fixed Income: Fixed income remains an important portfolio stabiliser. Our strategy is focused on mid-duration (3 to 7-year) holdings for balanced risk-reward. We recommend taking profits where possible on ultra-long duration bond holdings.
• Risks to Monitor: We are closely watching the US fiscal position, as further deterioration could create instability in the bond market. We are also keeping an eye on consumer prices for any adverse reaction following the Fed's rate cuts.

For the full analysis, detailed charts, and a full breakdown of our current asset allocation, we invite you to download and read the CIMB Market Outlook 4Q25 PDF report.