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3 Discretionary Stocks to Buy With Rate Cuts Looming
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The consumer discretionary sector has been having a pretty modest 2024. Since the start of the year, the S&P 500 Consumer Discretionary Select Sector SPDR (XLY) has slid 3.9% as of Aug 5. However, with interest rates about to be brought down by the Fed, the sector looks potentially lucrative.
Usually, when the economy expands, companies engaged in such businesses do well. Yet, while inflation has been coming down and the GDP advance estimate for second-quarter 2024 has shown the economy is on the right path, recent reports from the labor market, manufacturing and construction sectors have shown a significant slowdown. This has led to recession fears since late last week.
There is a wide consensus in the market that this will force the Fed’s hand, and a faster pace of rate cut will follow. While the possibility of an announcement of a 50 bps interest rate reduction in the Fed’s September meeting was hovering around the 20% mark per CME’s FedWatch Tool before the labor reports started coming in last week, it has jumped to 72.5% as of Aug 5.
Lower interest rates will reduce new borrowing costs and costs on existing variable-rate debt. Usually, the combination of these two factors encourages consumers to increase their discretionary purchases. When the pocket widens, pent-up demand can prompt higher spending on small and large luxuries.
June was the month when retail sales came in flat. Delays in rate-cutting by the Fed were starting to have an adverse impact on customer attitude. However, with growing pressure on the Fed to reduce rates faster than planned earlier, there will be further purchasing power in consumers' pockets. On cue, spending on non-essentials should increase. Hence, astute investors should consider betting on consumer discretionary stocks at present.
Our Picks
We have, thus, selected three consumer discretionary stocks for this purpose. These stocks flaunt a Zacks Rank #1 (Strong Buy) or #2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum; the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here
Royal Caribbean Cruises Ltd. (RCL - Free Report) is a global cruise company.
Royal Caribbean’s expected earnings growth rate for the current year is 67.8%. The Zacks Consensus Estimate for its current-year earnings has improved 2.5% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.
General Motors Company (GM - Free Report) is a multinational automotive manufacturing company.
General Motors’ expected earnings growth rate for the current year is 28.5%. The Zacks Consensus Estimate for its current-year earnings has improved 5% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.
Deckers Outdoor Corporation (DECK - Free Report) engages in the business of manufacturing and selling footwear, apparel and accessories.
Deckers Outdoor’s expected earnings growth rate for the current year is 8.1%. The Zacks Consensus Estimate for its current-year earnings has improved 3.6% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.
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3 Discretionary Stocks to Buy With Rate Cuts Looming
The consumer discretionary sector has been having a pretty modest 2024. Since the start of the year, the S&P 500 Consumer Discretionary Select Sector SPDR (XLY) has slid 3.9% as of Aug 5. However, with interest rates about to be brought down by the Fed, the sector looks potentially lucrative.
Usually, when the economy expands, companies engaged in such businesses do well. Yet, while inflation has been coming down and the GDP advance estimate for second-quarter 2024 has shown the economy is on the right path, recent reports from the labor market, manufacturing and construction sectors have shown a significant slowdown. This has led to recession fears since late last week.
There is a wide consensus in the market that this will force the Fed’s hand, and a faster pace of rate cut will follow. While the possibility of an announcement of a 50 bps interest rate reduction in the Fed’s September meeting was hovering around the 20% mark per CME’s FedWatch Tool before the labor reports started coming in last week, it has jumped to 72.5% as of Aug 5.
Lower interest rates will reduce new borrowing costs and costs on existing variable-rate debt. Usually, the combination of these two factors encourages consumers to increase their discretionary purchases. When the pocket widens, pent-up demand can prompt higher spending on small and large luxuries.
June was the month when retail sales came in flat. Delays in rate-cutting by the Fed were starting to have an adverse impact on customer attitude. However, with growing pressure on the Fed to reduce rates faster than planned earlier, there will be further purchasing power in consumers' pockets. On cue, spending on non-essentials should increase. Hence, astute investors should consider betting on consumer discretionary stocks at present.
Our Picks
We have, thus, selected three consumer discretionary stocks for this purpose. These stocks flaunt a Zacks Rank #1 (Strong Buy) or #2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum; the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here
Royal Caribbean Cruises Ltd. (RCL - Free Report) is a global cruise company.
Royal Caribbean’s expected earnings growth rate for the current year is 67.8%. The Zacks Consensus Estimate for its current-year earnings has improved 2.5% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.
General Motors Company (GM - Free Report) is a multinational automotive manufacturing company.
General Motors’ expected earnings growth rate for the current year is 28.5%. The Zacks Consensus Estimate for its current-year earnings has improved 5% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.
Deckers Outdoor Corporation (DECK - Free Report) engages in the business of manufacturing and selling footwear, apparel and accessories.
Deckers Outdoor’s expected earnings growth rate for the current year is 8.1%. The Zacks Consensus Estimate for its current-year earnings has improved 3.6% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.