Inflation has declined significantly over the past year after the Federal Reserve adopted a strict monetary tightening campaign to bring down soaring prices. The Federal Reserve’s move has been successful but concerns remain as inflation is still above its 2% target.

Market participants expect the Federal Reserve to finally end its monetary tightening campaign and start cutting rates this year. However, investors’ sentiment was once again dented after fresh inflation data released last week showed that inflation rose in December.

The Commerce Department reported on Jan 11 that the Consumer Price Index (CPI) increased significantly in December. December CPI jumped 0.3% month over month from November’s increase of 0.1%. Year over year, CPI jumped 3.4% in December compared to 3.1% in November.

Core CPI, which excludes the volatile food and energy prices, declined to 3.9% annually in December from 4% in the month earlier. However, it was higher than the consensus estimate of a rise of 3.8%. Core CPI remained unchanged on a month-over-month basis at 0.3% in December.

Investor sentiment remained higher in the final months of 2023 as inflation declined sharply, which also saw the Fed leaving its benchmark policy rate unchanged in its current range of 5.25-5.50%.

Also, slowing inflation saw a dovish stance from several Fed officials in December. Federal Reserve Chairman Jerome Powell also suggested that the rate hikes may be a thing of the past and the central bank may go for at least three interest rate cuts this year.

This saw markets closing 2023 on a rally. However, markets have been volatile since the beginning of January as investors struggled to assess the timing and size of rate cuts. The December CPI numbers once again dampened investors’ spirits, as they will once again try to gauge the Fed’s next course of action with interest rates.

Rising inflation can turn markets more volatile in the coming days, which can continue for a longer period.

Our Choices

Given this situation, investing in stocks from the utility sector such as Otter Tail Corporation (OTTR Quick QuoteOTTR - Free Report) , Entergy Corporation (ETR Quick QuoteETR - Free Report) , Atmos Energy Corporation (ATO Quick QuoteATO - Free Report) and American Water Works Company, Inc. (AWK Quick QuoteAWK - Free Report) sector seems a prudent choice. These companies are considered defensive due to their non-cyclical nature and their affiliation with the utilities sector. This implies that fluctuations in the market have minimal influence on these businesses.

Also, these stocks belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta utility stocks with a favorable Zacks Rank. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Otter Tail Corporation’s primary business is the production, transmission, distribution and sale of electric energy. OTTR, through its subsidiaries, is also engaged in other businesses that are referred to as Health Services Operations and Diversified Operations.

Otter Tail has an expected earnings growth rate of 1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 16.5% over the last 60 days. OTTR currently sports a Zacks Rank #1. Otter Tail has a beta of 0.54.

Entergy Corporation is primarily engaged in electric power production and retail distribution of power. ETR has 30,000 megawatt (MW) of generating capacity, including more than 8,000 MW of nuclear fuel capacity.

Entergy Corporation has an expected earnings growth rate of 5.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days. ETR currently has a Zacks Rank #2. Entergy Corporation has a beta of 0.70.

Atmos Energy Corporation, along with its subsidiaries, is engaged in the regulated natural gas distribution and storage business. ATO serves nearly 3.4 million customers in more than 1,400 communities in eight states, from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energyoperates more than 72,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.

Atmos Energy has an expected earnings growth rate of 7.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last 60 days. ATO presently has a Zacks Rank #2. Atmos Energy has a beta of 0.67.

American Water Works Company, Inc. provides essential water services to over 14 million customers in 24 states and has an employee strength of 6,500. AWK also acquires small water service providers to expand its customer base.

American Water Works Company has an expected earnings growth rate of 7.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works Company has a beta of 0.65.