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Fed Easing Cycle to Boost Stock Price of AEP, MU, GOLD, PHM
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With volatility spiking on Wall Street due to recession fears, it’s apparent that the Federal Reserve has been a bit late in easing its monetary policy. The Fed has kept the benchmark interest rates at record-high levels to curb persistent price pressure increases.
However, weakness in the labor market confirmed fears of an economic slump, with many market participants now expecting a series of deep Fed rate cuts in the months ahead to pre-empt an economic slowdown.
Nonfarm payrolls increased by 114,000 in July, way less than expectations of an increase of 175,000, added the Bureau of Labor Statistics. The unemployment rate jumped to 4.3%, a nearly three-year high, bolstering the case for an interest rate cut.
Meanwhile, Fed Chair Jerome Powell has assured that the central bank officials are on course to lower the cost of borrowings as recent inflationary pressure has begun to ebb. Fed’s preferred inflation gauge, the personal consumption expenditure index, increased 2.5% year over year in June, less than May and April’s yearly increase of 2.6% and 2.7%, respectively, per the Bureau of Economic Analysis.
Several traders are, in reality, betting that the Fed may trim interest rates before the scheduled meeting in September. If this happens, an interest rate cut out of the cycle will occur for the first time since the pandemic.
CME FedWatch Tool, nonetheless, noted that 53.5% of market participants expect the Fed to trim interest rates by 25 basis points in the September meeting. Additionally, traders expect at least three quarter-point interest rate cuts over the remainder of the year, leading to a Fed easing cycle.
Utility Stock, AEP – A Likely Winner From the Rate Cut Cycle
American Electric Power generates and distributes electricity and other commodities like natural gas. AEP expects its debt level to decrease in a low-interest-rate environment, which would help the company pay off any dues.
The Zacks Consensus Estimate for AEP’s current-year earnings has increased 0.4% over the past 60 days. The company’s expected earnings growth for the current year is 6.5%.
Rate Cuts Are a Boon for Semiconductor Stock – MU
A low interest rate scenario bodes well for semiconductor memory solutions provider Micron since its cash inflows aren’t disrupted, and lower borrowing costs will boost its profit margins.
The Zacks Consensus Estimate for MU’s current-year earnings has increased 26.1% over the past 60 days. The company’s expected earnings growth for the current year is 126.1%.
Gold Glitters, So Does Mining Stock – GOLD
The profit margin of the mining company, Barrick Gold, is expected to improve, banking on a likely jump in gold prices in a low interest rate environment. This is because money flows out of fixed-income investments and into gold amid interest rate cuts.
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 for the current year is 38.1%.
Rate Cuts Works Wonder for Homebuilder – PHM
Fed’s intention to dial back on its aggressive monetary policy has dragged mortgage rates down to their lowest level in more than a year. Such falling mortgage rates will boost housing demand, which bodes well for homebuilders, PulteGroup (read more: Plunge in Mortgage Rates Are a Boon for PHM, KBH, MHO).
The Zacks Consensus Estimate for PHM’s current-year earnings has increased almost 4% over the past 60 days. The company’s expected earnings growth for the current year is nearly 14%.
Shares of American Electric Power, Micron, Barrick Gold and PulteGroup have gained 21.9%, 36.3%, 4.4%, and 46.4%, respectively, over the past year.
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Fed Easing Cycle to Boost Stock Price of AEP, MU, GOLD, PHM
With volatility spiking on Wall Street due to recession fears, it’s apparent that the Federal Reserve has been a bit late in easing its monetary policy. The Fed has kept the benchmark interest rates at record-high levels to curb persistent price pressure increases.
However, weakness in the labor market confirmed fears of an economic slump, with many market participants now expecting a series of deep Fed rate cuts in the months ahead to pre-empt an economic slowdown.
Nonfarm payrolls increased by 114,000 in July, way less than expectations of an increase of 175,000, added the Bureau of Labor Statistics. The unemployment rate jumped to 4.3%, a nearly three-year high, bolstering the case for an interest rate cut.
Meanwhile, Fed Chair Jerome Powell has assured that the central bank officials are on course to lower the cost of borrowings as recent inflationary pressure has begun to ebb. Fed’s preferred inflation gauge, the personal consumption expenditure index, increased 2.5% year over year in June, less than May and April’s yearly increase of 2.6% and 2.7%, respectively, per the Bureau of Economic Analysis.
Several traders are, in reality, betting that the Fed may trim interest rates before the scheduled meeting in September. If this happens, an interest rate cut out of the cycle will occur for the first time since the pandemic.
CME FedWatch Tool, nonetheless, noted that 53.5% of market participants expect the Fed to trim interest rates by 25 basis points in the September meeting. Additionally, traders expect at least three quarter-point interest rate cuts over the remainder of the year, leading to a Fed easing cycle.
Stocks such as American Electric Power Company, Inc. (AEP - Free Report) , Micron Technology, Inc. (MU - Free Report) , Barrick Gold Corporation (GOLD - Free Report) and PulteGroup, Inc. (PHM - Free Report) are well-poised to make the most of the Fed’s interest rate-cut cycle. These stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Utility Stock, AEP – A Likely Winner From the Rate Cut Cycle
American Electric Power generates and distributes electricity and other commodities like natural gas. AEP expects its debt level to decrease in a low-interest-rate environment, which would help the company pay off any dues.
The Zacks Consensus Estimate for AEP’s current-year earnings has increased 0.4% over the past 60 days. The company’s expected earnings growth for the current year is 6.5%.
Rate Cuts Are a Boon for Semiconductor Stock – MU
A low interest rate scenario bodes well for semiconductor memory solutions provider Micron since its cash inflows aren’t disrupted, and lower borrowing costs will boost its profit margins.
The Zacks Consensus Estimate for MU’s current-year earnings has increased 26.1% over the past 60 days. The company’s expected earnings growth for the current year is 126.1%.
Gold Glitters, So Does Mining Stock – GOLD
The profit margin of the mining company, Barrick Gold, is expected to improve, banking on a likely jump in gold prices in a low interest rate environment. This is because money flows out of fixed-income investments and into gold amid interest rate cuts.
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 for the current year is 38.1%.
Rate Cuts Works Wonder for Homebuilder – PHM
Fed’s intention to dial back on its aggressive monetary policy has dragged mortgage rates down to their lowest level in more than a year. Such falling mortgage rates will boost housing demand, which bodes well for homebuilders, PulteGroup (read more: Plunge in Mortgage Rates Are a Boon for PHM, KBH, MHO).
The Zacks Consensus Estimate for PHM’s current-year earnings has increased almost 4% over the past 60 days. The company’s expected earnings growth for the current year is nearly 14%.
Shares of American Electric Power, Micron, Barrick Gold and PulteGroup have gained 21.9%, 36.3%, 4.4%, and 46.4%, respectively, over the past year.
Image Source: Zacks Investment Research