We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Forget About a March Rate Cut: Focus on These 3 Stocks Poised to Rally
Read MoreHide Full Article
Initial jobless claims data this morning showed that the labor market is still incredibly tight, and rather than a recession, the real risk moving forward could be a reacceleration of inflation. Data out of Europe has shown a pickup in inflation, and just last week US CPI came in slightly hot.
The number of individuals in the United States seeking unemployment benefits dropped by 16,000 to 187,000 last week, marking the lowest figure since September 2022 and significantly below market forecasts, which had anticipated 207,000.
This is followed by strong retail sales yesterday morning, further confirming the strength of the underlying US economy.
What are the implications of this surprisingly strong economy?
The final quarter of 2023 was punctuated by an extremely strong equity rally, powered by investor expectations of numerous rates cuts from the Fed coming in the next year. Market participants were pricing in the first rate cut in March, followed by 5-6 additional cuts throughout the rest of the year.
But I think investors are going to need to tamp down those expectations, because the Fed does not want to cut rates while the economy remains so robust, and the risk of reaccelerating inflation looming.
Seen below, the FedWatch tool indicates that expectations for a rate cut in March have already fallen from 70.2% last week to 55.7% today and I think by the end of this week, it should fall below 50%.
Image Source: CME Group
Where to Invest?
Based on these expectations, investors are going to want to stay away from growth-oriented stocks, which benefited from falling rates in Q4 last year. With higher rates, and higher rate expectations coming, defensive stocks, value-oriented stocks, and energy stocks should perform well.
Below I will share three top-ranked stocks, with numerous bullish catalysts investors can consider. Even if the market does correct based on the shifting interest rate expectations, these stocks should outperform.
Cardinal Health
Cardinal Health (CAH - Free Report) is a global, integrated healthcare solutions company that provides pharmaceutical and medical products, services, and solutions to healthcare providers. The company operates in various segments, including Pharmaceutical, Medical, and Distributor.
Cardinal Health plays a critical role in the healthcare supply chain, distributing pharmaceuticals and medical products to pharmacies, hospitals, and other healthcare facilities. Additionally, the company offers services such as inventory management, data analytics, and consulting to help healthcare organizations enhance efficiency and improve patient care.
CAH is likely to perform well moving forward as healthcare stocks often act as defensive holdings during periods of market uncertainty. Additionally, its Zacks Rank #1 (Strong Buy) rating improves the near-term odds of strong stock performance.
We also learned today that there is a fundamental catalyst which could lead to Cardinal Health having a year of strong sales growth.
Major insurer Humira (HUM - Free Report) announced that a surprise increase in demand for health services from older Americans could increase its costs. This sent the stock (-14%) lower on the day, and while it may be tough for Humira, will likely be a boon for a distributor like Cardinal Health.
The Healthcare ETF (XLV - Free Report) has already shown relative performance YTD, even with the insurance news weighing on it today.
Image Source: Koyfin
Toyota Motor
Toyota Motor (TM - Free Report) saw its earnings estimates trend steadily higher throughout the second half of last year and it currently boasts a Zacks Rank #1 (Strong Buy) rating.
Toyota Motors also has very strong EPS growth forecasts of 24.6% annually over the next 3-5 years, while having a forward earnings multiple of just 10x. This very fair valuation paired with huge profit growth should make for a very asymmetric trading opportunity.
Furthermore, in the US Retail sales data that came out yesterday, and beat expectations, auto sales were the primary driver of growth. It seems consumers are back in the market for new cars after nearly a year of falling demand. That is very encouraging for the world’s leading automotive manufacturer Toyota Motors.
Image Source: Zacks Investment Research
Enbridge
Finally, if the US economy is going to be strong, you can bet oil demand is going to be high. Enbridge (ENB - Free Report) , a Calgary based energy infrastructure company may be the stock to buy. Enbridge has a Zacks Rank #1 (Strong Buy) rating, and a hefty dividend yield of 7.2%.
Just today, the price of Crude oil broke out from a very tight consolidation after languishing for several months. Traders had every opportunity to push the commodity’s price below $70, but buyers always stepped up. If the price of oil rallies further the whole sector should rally.
Image Source: TradingView
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Forget About a March Rate Cut: Focus on These 3 Stocks Poised to Rally
Initial jobless claims data this morning showed that the labor market is still incredibly tight, and rather than a recession, the real risk moving forward could be a reacceleration of inflation. Data out of Europe has shown a pickup in inflation, and just last week US CPI came in slightly hot.
The number of individuals in the United States seeking unemployment benefits dropped by 16,000 to 187,000 last week, marking the lowest figure since September 2022 and significantly below market forecasts, which had anticipated 207,000.
This is followed by strong retail sales yesterday morning, further confirming the strength of the underlying US economy.
What are the implications of this surprisingly strong economy?
The final quarter of 2023 was punctuated by an extremely strong equity rally, powered by investor expectations of numerous rates cuts from the Fed coming in the next year. Market participants were pricing in the first rate cut in March, followed by 5-6 additional cuts throughout the rest of the year.
But I think investors are going to need to tamp down those expectations, because the Fed does not want to cut rates while the economy remains so robust, and the risk of reaccelerating inflation looming.
Seen below, the FedWatch tool indicates that expectations for a rate cut in March have already fallen from 70.2% last week to 55.7% today and I think by the end of this week, it should fall below 50%.
Image Source: CME Group
Where to Invest?
Based on these expectations, investors are going to want to stay away from growth-oriented stocks, which benefited from falling rates in Q4 last year. With higher rates, and higher rate expectations coming, defensive stocks, value-oriented stocks, and energy stocks should perform well.
Below I will share three top-ranked stocks, with numerous bullish catalysts investors can consider. Even if the market does correct based on the shifting interest rate expectations, these stocks should outperform.
Cardinal Health
Cardinal Health (CAH - Free Report) is a global, integrated healthcare solutions company that provides pharmaceutical and medical products, services, and solutions to healthcare providers. The company operates in various segments, including Pharmaceutical, Medical, and Distributor.
Cardinal Health plays a critical role in the healthcare supply chain, distributing pharmaceuticals and medical products to pharmacies, hospitals, and other healthcare facilities. Additionally, the company offers services such as inventory management, data analytics, and consulting to help healthcare organizations enhance efficiency and improve patient care.
CAH is likely to perform well moving forward as healthcare stocks often act as defensive holdings during periods of market uncertainty. Additionally, its Zacks Rank #1 (Strong Buy) rating improves the near-term odds of strong stock performance.
We also learned today that there is a fundamental catalyst which could lead to Cardinal Health having a year of strong sales growth.
Major insurer Humira (HUM - Free Report) announced that a surprise increase in demand for health services from older Americans could increase its costs. This sent the stock (-14%) lower on the day, and while it may be tough for Humira, will likely be a boon for a distributor like Cardinal Health.
The Healthcare ETF (XLV - Free Report) has already shown relative performance YTD, even with the insurance news weighing on it today.
Image Source: Koyfin
Toyota Motor
Toyota Motor (TM - Free Report) saw its earnings estimates trend steadily higher throughout the second half of last year and it currently boasts a Zacks Rank #1 (Strong Buy) rating.
Toyota Motors also has very strong EPS growth forecasts of 24.6% annually over the next 3-5 years, while having a forward earnings multiple of just 10x. This very fair valuation paired with huge profit growth should make for a very asymmetric trading opportunity.
Furthermore, in the US Retail sales data that came out yesterday, and beat expectations, auto sales were the primary driver of growth. It seems consumers are back in the market for new cars after nearly a year of falling demand. That is very encouraging for the world’s leading automotive manufacturer Toyota Motors.
Image Source: Zacks Investment Research
Enbridge
Finally, if the US economy is going to be strong, you can bet oil demand is going to be high. Enbridge (ENB - Free Report) , a Calgary based energy infrastructure company may be the stock to buy. Enbridge has a Zacks Rank #1 (Strong Buy) rating, and a hefty dividend yield of 7.2%.
Just today, the price of Crude oil broke out from a very tight consolidation after languishing for several months. Traders had every opportunity to push the commodity’s price below $70, but buyers always stepped up. If the price of oil rallies further the whole sector should rally.
Image Source: TradingView