The world has been primarily focused on the decisions made by the United States Federal Reserve (the Fed), particularly regarding interest rates and the state of the economy. Given that inflation has been tamed sufficiently, the Fed has decided to cut interest rates at the most aggressive pace in 16 years. However, there’s a main event happening elsewhere.

In Japan’s economy, which mainly depends on its manufacturing sector for exports like automobiles and steel, a shift in interest rates is setting up a completely different dynamic to favor other sectors like the financial and technology sectors. Investors need to realize that higher interest rates compress the rate of exports while boosting domestic activity, creating these divergences.

To focus on these trends, investors can watch stocks like Sony Group Co. (NYSE: SONY) as part of the technology and software as a service space. Then, markets could find some upside and momentum in the financial sector through banking stocks, which usually benefit from rising interest rates as well; this is where names like Nomura Holdings Inc. (NYSE: NMR) and Mizuho Financial Group Inc. (NYSE: MFG) can come to be attractive mentions.

Why Sony Stock Stands Out in the Current Market Cycle

To crystallize this trend, investors can compare the price action between Sony, a services-based stock, against a manufacturer and exporter like Toyota Motor Co. (NYSE: TM) over the past 12 months. On the news of new interest rate hikes, Toyota stock has sold off to trade at a low of 76% of its 52-week high level.

At the same time, Sony stock has barely moved the needle, as it still carries enough bullish momentum to trade at up to 90% of its 52-week high price today. From this dynamic, investors can see where the market preference is headed today and where it might continue in the coming quarters.

Building on this, here’s what some Wall Street analysts had to say. The latest update came from those at TD Cowen. Analysts reiterated their Buy rating as of October 2024, coupling the view with a $23 a share price target for the stock.

To prove these new valuations right, investors would have to ride Sony stock higher by a net upside of 26.4% from where it trades today, not to mention a new high for the year. Then, the business's financial results are presented in the most recent quarterly press release.

Revenues rose by 12% over the past 12 months, and the company’s increasing demand through its software and cloud segments led this new demand to a 25% jump in operating income. Knowing that the fundamentals are aligned in favor of Sony stock, some institutional investors also came in to buy ahead of the momentum.

Those at Blue Trust decided to boost their holdings by 64.4% as of October 2024, bringing their net position up to $547,000 today.

Nomura Stock Gains Momentum as Discounts Become Apparent

Like Sony stock, Nomura has shown stronger price action compared to its manufacturing peers in Japan. The stock now trades at 81% of its 52-week high. More than that, the bank has been showing a rise in fundamentals significantly ahead of these interest rate hikes.

According to the latest quarterly earnings press release, Nomura reported its net income grew by up to 21% over the quarter alone, not to mention achieving a return on equity (ROE) rate of 8.1%. In the U.S., shares of Citigroup Inc. (NYSE: C) fell due to the bank posting only 7% ROE, meaning Japanese banks show a bit better structure in this global cycle.

The bank’s earnings per share (EPS) jumped threefold during the year. Yet, the stock has barely broken the double-digit rally performance, making it an overdue event for investors to consider for their portfolios. Compared to the rest of the finance sector, Nomura shows a way to deliver this sort of upside.

Trading at a price-to-earnings (P/E) ratio of only 11.9x compared to the rest of the finance sector’s average valuation of 47.5x today. Knowing that the region’s EPS is growing faster than U.S. peers, Nomura might command premium valuations in the coming quarters.

Mizuho Stock’s Discount Attracts New Institutional Buyers

The trend for financial and services stock preference made its way into Mizuho stock as well, considering the bank trades at 93% of its 52-week high, which shows investors more bullish momentum over manufacturing stocks and the rest of the Japanese group.

More than that, the stock still trades at discounts to the sector, with a P/E of 13.8x, something a few institutional investors leaned on in recent months. Those at American Century Companies bought 10.9% more in their Mizuho holdings, netting their investment at $10.1 million today.

The reason for this buying could be focused on the future just as much as it is on the past, considering Mizuho posted an EPS jump to $0.13 from a net loss of $0.05 in the previous quarter, meaning investors might be in for a newly sparked bull market in the bank’s businesses.