2024年8月13日星期二

Do THIS if the Fed Cuts Interest Rates

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Editor's Note: As Chief Investment Strategist Marc Lichtenfeld writes below, the Federal Reserve is widely expected to cut interest rates by mid-September...

Which has many investors wondering what they should do to take advantage.

To help answer that question, Chief Investment Strategist Alexander Green is hosting an Emergency State-of-the-Market Summit next week.

At this informative event, Alex will discuss a specific type of asset - he likes to call them "Power Stocks" - that tends to get a massive boost from interest rate cuts.

To sign up for Alex's live broadcast and learn more about how Power Stocks work, click here.

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- James Ogletree, Managing Editor

How to Profit Off the Fed's Next Interest Rate Move

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

The federal funds futures market is indicating that there's a 100% chance of an interest rate cut at the September 17-18 Federal Reserve meeting. It also shows a 74% probability of rates being at least a full percentage point lower by December.

Due to the recent rise in unemployment, some have even been calling for an emergency rate cut of as many as 75 basis points (three-quarters of a percentage point) before the September meeting.

If rates do decline, there are certain sectors and stocks that will surely benefit. Let's take a look at some of the potential winners.

Interest rate-sensitive sectors like utilities would be some of the biggest beneficiaries of lower rates. They tend to borrow a lot of money, and lower rates mean lower interest payments.

There are plenty of quality utilities to choose from. I particularly like utilities that generate some of their power from nuclear power plants, like Duke Energy (NYSE: DUK).

Duke pays a consistent dividend, but if you're hunting for bigger yields, you might consider NextEra Energy Partners (NYSE: NEP), which I've been pounding the table on for months. At current prices, it pays a 14.5% yield.

I also like New Jersey Resources (NYSE: NJR), which recently announced that it expects earnings growth of 7% to 9% annually over the long term. The stock is up 52% with dividends reinvested since I recommended it to my Oxford Income Letter readers in December 2020, and lower rates should spark even better performance.

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Consumer discretionary stocks should also do well in a falling-rate environment. Stocks like Best Buy (NYSE: BBY) and automakers like Toyota (NYSE: TM) are worth a look.

However, keep in mind that the Fed doesn't always do what the market expects. Heading into 2024, the fed funds futures market was certain that we'd see a flurry of rate cuts by this summer. Yet here we are in August, still waiting on the first one.

Should the Fed hold rates steady, you'll want to look at industrials and financials.

Eaton (NYSE: ETN) is one of my favorite industrial stocks. I've held it in the Oxford Income Letter portfolio for years, and it has returned an incredible 617% so far.

Insurance stocks have been performing well, and if rates stay steady, that should continue. Chubb (NYSE: CB) is a giant in the industry and generates tons of cash flow.

Conventional thinking says that rates are headed lower and stocks will benefit as a result.

But as they say, there's always a bull market somewhere. You should be able to make money no matter what the Fed decides.

Good investing,

Marc

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