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Fed's September Rate Cut Bets Rise: NVDA, GOLD, PHM to Gain
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The Federal Reserve recently concluded its fifth policy meeting of 2024 and has kept the benchmark interest rates at a two-decade high. The Fed kept the interest rates unaltered at 5.25% to 5.5% for the 12th successive month in July to counter the worst price pressures in 40 years.
However, Fed Chair Jerome Powell indicated that central bank officials are on course to lower borrowing costs in September as inflationary pressure has begun to ebb amid a cooler labor market that doesn’t overheat the economy.
Powell reiterated that if prices of indispensable commodities and services continue to fall further toward the central bank’s 2% goal, then the Fed will dial back its aggressive monetary policy, and a September rate cut will be on the table.
Fed’s key gauge of price pressures, the personal consumption expenditures (PCE) index increased 2.5% year over year in June, less than May’s 2.6% yearly gain, per the Bureau of Economic Analysis. Have a look at the table:
This steady monthly slowdown in inflation from the year-ago levels prompted market participants to increase bets on a September interest rate cut. Nearly 68.5% of market participants now expect the Fed to trim interest rates by a quarter-point in the September policy meeting, up from a probability of 52% in May, according to the CME FedWatch Tool. The odds of a minimum of two interest rate cuts by the end of the year have also gone up.
Rate Cuts Are a Boon for Tech Stocks
Interest rate cuts are a blessing in disguise for tech stocks such as NVIDIA Corporation (NVDA - Free Report) since the inventor of GPUs’ cash flows aren’t affected and the cost of borrowing gets reduced, eventually boosting profit margins (read more: Fed Rate Cut Odds Rise: MU, NVDA, VST Stock Price to Gain).
The Zacks Consensus Estimate for NVIDIA’s current-year earnings has increased 1.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 106.9%. NVIDIA currently sports a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Gold Glitters in a Low Interest Rate Environment
Fixed-income investment lose their appeal in a low interest rate scenario and money flows out of such assets into gold. The price of the yellow metal climbs northward and boosts the profit margins of gold mining stocks such as Barrick Gold Corporation (GOLD - Free Report) .
The Zacks Rank #2 (Buy) company has gold mining operations in the United States. The Zacks Consensus Estimate for GOLD’s current-year earnings has increased 9.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 38.1% (read more: Rise in Rate-Cut Bets May Prompt Stock Gains for GOLD, KGC, FNV).
Rate Cuts Work Wonders for Homebuilders
Homebuilders also benefit from interest rate cuts since they reduce mortgage rates, which leads to more demand. Interest rate cuts also trim the input costs of homebuilders like PulteGroup, Inc. (PHM - Free Report) .
The Zacks Consensus Estimate for PHM’s current-year earnings has increased 3.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 13.3%. PHM, at present, has a Zacks Rank #2.
Shares of NVIDIA, Barrick Gold and PulteGroup have gained 148.4%, 11.8% and 58.7%, respectively, over the past year.
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Fed's September Rate Cut Bets Rise: NVDA, GOLD, PHM to Gain
The Federal Reserve recently concluded its fifth policy meeting of 2024 and has kept the benchmark interest rates at a two-decade high. The Fed kept the interest rates unaltered at 5.25% to 5.5% for the 12th successive month in July to counter the worst price pressures in 40 years.
However, Fed Chair Jerome Powell indicated that central bank officials are on course to lower borrowing costs in September as inflationary pressure has begun to ebb amid a cooler labor market that doesn’t overheat the economy.
Powell reiterated that if prices of indispensable commodities and services continue to fall further toward the central bank’s 2% goal, then the Fed will dial back its aggressive monetary policy, and a September rate cut will be on the table.
Fed’s key gauge of price pressures, the personal consumption expenditures (PCE) index increased 2.5% year over year in June, less than May’s 2.6% yearly gain, per the Bureau of Economic Analysis. Have a look at the table:
This steady monthly slowdown in inflation from the year-ago levels prompted market participants to increase bets on a September interest rate cut. Nearly 68.5% of market participants now expect the Fed to trim interest rates by a quarter-point in the September policy meeting, up from a probability of 52% in May, according to the CME FedWatch Tool. The odds of a minimum of two interest rate cuts by the end of the year have also gone up.
Rate Cuts Are a Boon for Tech Stocks
Interest rate cuts are a blessing in disguise for tech stocks such as NVIDIA Corporation (NVDA - Free Report) since the inventor of GPUs’ cash flows aren’t affected and the cost of borrowing gets reduced, eventually boosting profit margins (read more: Fed Rate Cut Odds Rise: MU, NVDA, VST Stock Price to Gain).
The Zacks Consensus Estimate for NVIDIA’s current-year earnings has increased 1.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 106.9%. NVIDIA currently sports a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Gold Glitters in a Low Interest Rate Environment
Fixed-income investment lose their appeal in a low interest rate scenario and money flows out of such assets into gold. The price of the yellow metal climbs northward and boosts the profit margins of gold mining stocks such as Barrick Gold Corporation (GOLD - Free Report) .
The Zacks Rank #2 (Buy) company has gold mining operations in the United States. The Zacks Consensus Estimate for GOLD’s current-year earnings has increased 9.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 38.1% (read more: Rise in Rate-Cut Bets May Prompt Stock Gains for GOLD, KGC, FNV).
Rate Cuts Work Wonders for Homebuilders
Homebuilders also benefit from interest rate cuts since they reduce mortgage rates, which leads to more demand. Interest rate cuts also trim the input costs of homebuilders like PulteGroup, Inc. (PHM - Free Report) .
The Zacks Consensus Estimate for PHM’s current-year earnings has increased 3.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 13.3%. PHM, at present, has a Zacks Rank #2.
Shares of NVIDIA, Barrick Gold and PulteGroup have gained 148.4%, 11.8% and 58.7%, respectively, over the past year.
Image Source: Zacks Investment Research