Following the Federal Reserve’s latest rate cut, markets are entering a phase that looks deceptively calm on the surface but potentially transformative beneath it. On a recent episode of Lead-Lag Live, Jay Hatfield, CEO of Infrastructure Capital Advisors, joined host Melanie Schaeffer to unpack what comes next for investors navigating easing policy, stubborn inflation lags, and a market still dominated by mega-cap tech leadership.
Hatfield’s core message was straightforward: when the Fed turns dovish, leadership almost always shifts. The mistake many investors make is assuming the same winners will keep winning. Historically, that has rarely been the case.
Two Economies, One Market Turning Point
Hatfield framed the current environment as a “two-economy” setup. Housing and construction have already slipped into recessionary territory, reflecting the delayed impact of higher rates. At the same time, technology and intellectual-property-heavy sectors have continued to thrive, masking broader softness.
This divergence matters because shelter inflation lags actual economic activity by a wide margin. As that lag resolves, Hatfield expects inflation to move closer to target levels, giving the Fed room to continue easing. In his view, lower policy rates and a declining inflation trend create a historically favorable backdrop for risk assets, even if volatility remains along the way.
Why Mega-Cap Tech May No Longer Lead
One of the more contrarian takeaways from the discussion was Hatfield’s caution on mega-cap technology. His models suggest that the so-called “Mag Eight” are now offering relatively limited upside compared to the broader market. That does not mean tech is poised to collapse, but rather that it is increasingly fully valued.
In contrast, non-tech sectors and income-oriented equities are still priced for skepticism. When the Fed shifts from tightening to easing, those overlooked areas often see both multiple expansion and improving fundamentals. That combination can matter more than squeezing out incremental gains from already-crowded trades.
Preferreds and Credit: Income With Optionality
Hatfield highlighted preferred stocks and high-yield credit as areas that have quietly delivered income while waiting for clearer policy signals. In a typical rate-cutting cycle, these assets tend to benefit not only from their coupons but also from price appreciation as yields compress.
This cycle has been unusual, with uncertainty around the Fed muting those gains so far. Hatfield argued that clarity is the missing ingredient. Once policy rates settle decisively lower, investors are likely to rotate out of cash and money markets and back into higher-yielding income assets. Even without price gains, steady income can play an important role in total returns and portfolio stability.
Small Caps as a Risk-On Expression
Small caps featured prominently in the discussion, not because of balance-sheet leverage myths, but because of sector composition. Small-cap indexes are far less dominated by mega-cap technology and far more exposed to cyclical, domestic, and value-oriented businesses.
Hatfield emphasized that small caps tend to outperform when the Fed becomes more accommodative, largely because they represent a cleaner expression of risk-on sentiment outside of tech. Since the Fed signaled a more dovish stance, small caps have already begun to outperform, a trend he expects to continue into 2026 if easing persists.
Portfolio Construction Heading Into 2026
For income-focused investors, Hatfield suggested balancing higher-risk fixed income with equity income strategies rather than relying solely on traditional low-yield bonds. Higher-quality risk assets, in his view, can deliver income while still participating in upside during favorable cycles.
The broader takeaway was not about chasing any single asset class, but about recognizing where the cycle is shifting. When the Fed cuts, diversification away from yesterday’s winners and toward underappreciated sources of income and value has historically paid off.
Bottom line: As rate cuts take hold, leadership may move away from mega-cap growth and toward income-producing assets, credit, and small-cap value. For investors positioning into 2026, the next phase of the cycle may be less about owning what worked last year and more about rotating into what the Fed’s pivot tends to favor.
DISCLAIMER – PLEASE READ: This is a sponsored episode for which Lead-Lag Publishing, LLC has been paid a fee. Lead-Lag Publishing, LLC does not guarantee the accuracy or completeness of the information provided in the episode or make any representation as to its quality. All statements and expressions provided in this episode are the sole opinion of Infrastructure Capital Advisors and Lead-Lag Publishing, LLC expressly disclaims any responsibility for action taken in connection with the information provided in the discussion. The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
