Ahead of the rate cut this week, I made a mistake in the media by not qualifying when I said the stock market would like the cut. I should have said the word “eventually”. This became clear when I saw the AFR report on Thursday afternoon after the market closed.

This is what Nicola Blackburn reported: “The share market closed at its lowest level in a month on Thursday, after a hotter-than-expected jobs market and lacklustre earnings from major bank and mining stocks weighed on the bourse. The S&P/ASX 200 Index fell 1.2 per cent, or 96.40 points to 8322.80. The All Ordinaries Index retreated 1.1 per cent. Seven of the 11 sectors were in the red, with losses led by the real estate sector as Goodman Group dragged.”

What this says is that the prospect of more rate cuts will mean the share price of a great company like the CBA is set to fall in coming months. In fact, many of the companies that have surged in recent years are set to experience stock price falls as lower rates encourage investors to take profits and buy other companies.

Over the past week, CBA has fallen by 7.26%. This is what I’ve been telling my financial planning clients for about six months, as I suspected we were getting closer to a cut. The problem was that the rate cut came later than I expected, and CBA’s share price rose over 21% in that time!

So, it’s backtracked over 7% and today the company analysts surveyed by FNArena think the big bank’s share price will fall by 31%. Citi tips a 41.7% slump, which I doubt, but another 15% tanking isn’t unbelievable.

Why? It’s called a rotation, and it happens when there are significant developments, such as a period of interest rate rises, that then turn into a period of rate cuts. In those times, businesses that benefitted from rate hikes, such as banks that charged higher rates for using their money for loans, saw their share prices spike.

However, when rates start to fall, businesses that suffered because of 13 rate hikes, are likely to do well with cuts. These stocks become popular while the former great stocks, such as the banks, lose friends/investors and their share prices fall.

This week, we’ve seen the likes of Tyro (+6.9% this week), Audinate (14.49%) and Megaport (26.5%) have had good weeks, but these companies have copped it over the period when rates were rising. Of course, there are other reasons for their recent rises and past falls, but the prospect of further rate cuts is a shot-in-the-arm for these stocks.

Over the past six months, EX20 (an ETF that gives you the top 200 stocks minus the top 20) has gone up by 6.91%, while the overall market was up only 3.9%. This is an early sign that the big companies in the top 20 of the S&P/ASX 200 index, that have been driving our market higher, will see selling, while others outside of the top 20 will see their share prices rise.

In the US, there’s a rotation going on out of the mega-cap Magnificent 7 companies (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla) into other stocks in the S&P 500 index, that will benefit from lower interest rates.

This week looked at these great stocks and reported the following: “Even though the Magnificent 7 are some of the most successful companies in the world, they don’t outperform every single year,” Piper Sandler analyst Michael Kantrowitz wrote in a Monday note. “So far in 2025, only META is significantly leading the S&P 500 and 4 of the Mag 7 stocks are in the red YTD.”

That’s because of the rotation factor that the CBA is now copping. It’s why I’ve been putting my financial planning clients into small cap funds, stocks/ETFs like EX20 and why I’m even favouring bonds because they do well when interest rates fall.

On Thursday, the jobs report saw unemployment rise from 4% to 4.1%, which is good for rate cuts going forward. But the 44,000 jobs created in January were bigger than expected and that made some tip further rate cuts will go on hold.

Despite this and because the CBA economics team can read the economy better than most, they still see another cut in May and they’re not alone.

The AFR reported on Thursday that “bond managers are betting as many as three more rate cuts from the Reserve Bank of Australia this year, dismissing Governor Bullock’s more cautious stance after the central bank cut rates for the first time in more than four years.”

But wait, there’s more from these bond market experts.

“Money market are pricing in a total of 46 basis points of monetary easing by year-end which is the equivalent of between one and two rate cuts with a 77 per cent chance the RBA will go again in May,” the AFR reporters revealed.

And there is even more and it’s pretty blunt. “Somehow the RBA is debating whether one’s enough,” said Rob Mead, the head of Pimco in Australia which is among the world’s largest bond manager. “Don’t listen to that, it’s rubbish,” he told The Portfolio Construction Forum in Sydney on Wednesday. “They’re doing another three in 2025 so if you’re going to keep waiting [to buy bonds] it’s on you. But please be aware that this economy needs rate cuts, and so they are coming.”

If this rate cut assessment is right, we’ll see a lot more from this rotation and the share prices of our big banks will go lower. But there’ll be a time when the smart long-term investor will get CBA share prices at a great lower price. And when I see it, I’ll try to be the first to tell you.

As I often advise — watch this space — as eventually CBA and other top 20 stocks will be in the buy zone again, and it could coincide with a new rotation that I’ll try and tip in advance.

Market timing isn’t easy but nine times out of 10 people with experience with stocks and economies, like yours truly, eventually get it right. But you can look wrong for a time and that can be hard to deal with, but it goes with the job. It's a tough job but someone has to do it!