The Fed’s rate cut has refocused attention on resilience. Jensen’s Adam Calamar explains why quality companies may be best placed to navigate a lower-rate environment.
After a year marked by uneven growth and softening economic data, the Federal Reserve’s recent rate cut raises a familiar question for investors: what comes next? According to Jensen Portfolio Manager Adam Calamar, the answer lies in focusing on companies that can hold their ground when conditions become uncertain.
“Rates are typically cut to stimulate the economy when it starts to soften,” Calamar said. “We’ve seen weaker jobs numbers, downward revisions, and consumer spending that’s barely growing on an inflation-adjusted basis.”
Adam Calamar, CFA
Against that backdrop, he believes the latest cut makes sense but also signals a more fragile environment. “The economy hasn’t rolled over into a deep recession, but it’s definitely not as strong as it once was.”
Navigating a slower easing cycle ahead
While the future direction of rates remains open to debate, Calamar anticipates a slow, deliberate easing path rather than a rapid unwind. Inflation remains a concern, he noted, but policymakers still have room to maneuver.
“Unlike during the financial crisis, we’re starting from higher ground. There’s plenty of dry powder to lower rates before we hit the floor,” he said. “That reduces the odds of a full-blown disaster, though it doesn’t remove the risk entirely.”
For investors, that backdrop favors steadier hands. “A lot of high-momentum, high-volatility trades have run their course,” Calamar said. “It’s probably a good time to focus on the more stable, more reliable parts of the market.”
A lot of high-momentum, high-volatility trades have run their course. It’s probably a good time to focus on the more stable, more reliable parts of the market.”
That naturally points toward quality companies — the foundation of Jensen’s investment philosophy. Jensen defines quality businesses as those with durable competitive advantages, consistent cashflows, and the ability to earn returns above their cost of capital.
“They usually have higher margins, lower debt, and strong pricing power,” he said. “When the economy gets choppy, those characteristics matter.”
Understanding the flight to quality
Periods of uncertainty often bring a flight to quality, as investors gravitate toward companies that can endure slower growth. “Those flights can last months or even years, depending on the cycle,” Calamar said.
Within Jensen’s lineup, its quality-focused strategies tend to benefit when interest rates decline, though holdings in the Jensen Quality Mid Cap Strategy can be more sensitive to the economic cycle.
“Mid-sized companies generally carry more debt and gain more from refinancing at lower rates,” he explained.
Large-cap quality growth holdings in the Jensen Quality Growth Strategy, such as Microsoft (MSFT), can issue debt at lower interest rates, making them less impacted by rate movements.
Balance-sheet strength is often the first thing investors reach for when fear rises. “In those moments, people want bond-like stocks — companies whose prices move up as yields fall,” said Calamar. “But the trick is finding firms that combine that resilience with durable, growing cashflows. Those can outperform through both the downturn and the recovery.”
Identifying where quality may endure
For Jensen, that leads naturally to sectors such as software, franchising, and business services — areas with recurring revenue and embedded customer relationships. Examples include Microsoft in subscription software, Verisk (VRSK) in risk modeling for insurers, and royalty-income businesses such as McDonald’s (MCD) that collect steady fees from franchisees.
“These are companies people rely on every day,” said Calamar. “They’re the operating systems of the economy.”
These are companies people rely on every day. They’re the operating systems of the economy.”
As the Fed’s easing cycle unfolds, Jensen will continue to monitor economic indicators closely while maintaining a focus on fundamentals.
Calamar concluded: “We’re stock-pickers first. Whatever the path of rates, quality companies are built to endure — and right now, they’re looking especially attractive.”
Click here to view a list of the Jensen Quality Growth Strategy’s current holdings.
Click here to view a list of the Jensen Quality Mid Cap Strategy’s current holdings.
Strategy holdings are subject to change.
The company discussions in this article are solely intended to illustrate the application of our investment approach and are not intended as investment recommendations or an indication that our investment decisions have been or will be profitable.
The information contained herein is current as of the date of this material and is subject to change at any time, based on market and other conditions.
Past performance is no guarantee of future results. The information contained herein represents management’s current expectation of how the Jensen Quality Growth Strategy and the Jensen Quality Mid Cap Strategy will continue to be operated in the near term; however, management’s plans and policies in this respect may change in the future. In particular, (i) policies and approaches to portfolio monitoring, risk management, and asset allocation may change in the future without notice and (ii) economic, market and other conditions could cause the Strategies and accounts invested in the Strategies to deviate from stated investment objectives, guidelines, and conclusions stated herein.
Certain information contained in this material represents or is based upon forward-looking statements, which can be identified by the use of terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of a client account may differ materially from those reflected or contemplated in such forward-looking statements. on market and other conditions.
The S&P 500 Index is a market value-weighted index consisting of 500 stocks chosen for market size, liquidity, and industry group representation. The index is unmanaged, and you cannot invest directly in an index.
© 2025 Jensen Investment Management
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