Powell said the Fed is prepared to keep the current target federal funds rate for as long as appropriate. He continued to say it will last until they gain “greater confidence” that inflation is falling sustainably toward 2%. Analysts expect the first rate cut could come as early as September or December 2024. This is depending on the strength of the labor market and inflation data.
So with that being said, here are three stocks to buy in anticipation for this event. It seems likely that we are at the peak of the interest rate cycle, and that rattes look poised to drop from here.
Stocks to Buy Thanks to the Fed: Kroger (KR)
As a major player in the grocery sector, Kroger (NYSE:KR) is positioned to benefit from reduced borrowing costs. These can spur consumer spending, making it a strong candidate for stock gains following a rate cut.
In 2023, Kroger demonstrated resilience with a slight growth in identical sales and strong digital sales expansion.
Looking forward to 2024, Kroger plans to focus on cost-saving measures. The company anticipates identical sales growth between 0.25% and 1.75%. The company also expects an adjusted operating profit between $4.6 and $4.8 billion. Finally, there is an expected adjusted earnings per share between $4.30 and $4.50.
It should be noted that analysts collectively envision a huge EPS surge for KR stock. This forecasts that this metric will grow 54.28% to $4.57.
Most everyday Americans are focused on the cost of living crisis at present. I think KR could rebound when people are spending less on debt and more on everyday items.
BHP Group (BHP)
BHP Group (NYSE:BHP) could gain from a dovish monetary policy due to its diversified operations.
This year, BHP is concentrating on aligning its operations with global megatrends such as urbanization and the transition to lower greenhouse gas emissions. They aim to capitalize on their high-quality portfolio of assets, which includes key commodities like iron ore, copper, and nickel, vital for technologies related to electrification.
Owning shares in BHP gives investors exposure to a large basket of commodities, which are sensitive to interest rate cycles. I believe that once the Fed reduces rates as expected this year that we will see a rally in their prices.
All of this is wrapped up with BHP’s dividend yield of 5.29% at the time of writing. Buying the stock now while shares are depressed by record interest rates could lock in this yield on cost (YoC) into the future.
Shopify (SHOP)
Shopify (NYSE:SHOP) could experience accelerated growth as lower interest rates boost consumer and business spending online.
I also think that SHOP has a great growth story behind it, and that in the future it will continue to innovate and improve. An EPS forecast for the company that’s close to the quadruple digits supports the growth tailwind for SHOP. Analysts anticipate that SHOP’s EPS will increase 944.33% this year to $1.04, up from ten cents at the time of writing.
Furthermore, Shopify projects continued growth with revenue expected to increase at a low to mid-twenties percentage rate year-over-year. This forecast accounts for the impact of selling their logistics businesses, which is expected to pose a temporary challenge to revenue growth but improve gross margins significantly.
SHOP then has a great mix of tailwinds to make it one of those stocks to buy in anticipate for a rate cut by the Federal reserve later this year.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Matthew started writing coverage of the financial markets during the crypto boom of 2017 and was also a team member of several fintech startups. He then started writing about Australian and U.S. equities for various publications. His work has appeared in MarketBeat, FXStreet, Cryptoslate, Seeking Alpha, and the New Scientist magazine, among others.