The Fed Cuts Rates: What Stocks To Buy Now?

Summary

The Federal Reserve has made an unexpected 50 basis point rate cut, the first since 2020, bringing the rate to 5%. The Fed anticipates further cuts this year and into 2025-2026. This video explores how industries like real estate, utilities, consumer discretionary, and small-cap stocks could benefit from lower rates. Specific stocks highlighted include SoFi and Zillow, which may see increased loan demand and housing market activity, respectively. Additionally, dividend stocks like Realty Income and VICI Properties are discussed for their potential to attract investors as fixed-income investments become less appealing with falling interest rates.

Takeaways

• 📉 The Federal Reserve has made an unexpected 0.5% interest rate cut, the first since 2020, bringing the rate down to 5%.
• 🔮 The Fed anticipates two more rate cuts in 2024, and two more in 2025 and 2026, aligning with their current plan.
• 📈 The Fed envisions a 2% GDP growth in the coming years, with supply chain improvements supporting economic growth.
• 💼 The labor market is cooling but remains strong, with the unemployment rate expected to rise from 4.2% to 4.4% by year-end.
• 🏠 Real Estate Investment Trusts (REITs) and utilities are sectors that could benefit from lower interest rates due to reduced borrowing costs.
• 🛍️ Consumer discretionary stocks may see a boost as lower interest rates could encourage larger purchases like cars and home improvement.
• 🏭 Industrial and energy sectors could benefit from increased investments in new projects or expansions due to decreased borrowing costs.
• 💹 Small cap stocks, technology, and growth stocks, especially those not yet profitable, could benefit from the lower interest rates.
• 🏦 Lending and financial companies like Upstart and SoFi could see benefits as lower interest rates decrease borrowing costs.
• 🏡 Housing and construction industries may be stimulated by lower interest rates, making mortgages cheaper and potentially boosting home sales.

Q & A

What was the unexpected decision made by the FED in the video?

The FED decided to cut rates by 51 basis points instead of the 25 basis points that 50% of the people expected.

When was the last rate cut before the one mentioned in the video?

The last rate cut before the one mentioned in the video was in 2020.

What is the current interest rate after the FED's decision, as per the video?

After the FED's decision, the current interest rate is still at 5%.

What does the FED anticipate for the next couple of years in terms of rate cuts, according to the video?

The FED anticipates two more rate cuts this year, four in 2025, and then another two in 2026.

What sectors are expected to benefit from rate cuts, as discussed in the video?

Sectors expected to benefit from rate cuts include Real Estate Investment Trusts, utilities, consumer discretionary, industrial and energy, small cap stocks, technology and growth stocks, lending and financials, housing and construction, and retail.

Why are Real Estate Investment Trusts and utilities highlighted as benefiting from rate cuts?

Real Estate Investment Trusts and utilities benefit from rate cuts because they are interest rate sensitive and lower rates mean lower borrowing costs. Additionally, they are sought for their yield, which becomes more attractive when interest rates fall.

How might consumer discretionary stocks benefit from lower interest rates?

Consumer discretionary stocks might benefit from lower interest rates as consumers may be more inclined to make larger purchases, such as cars, with cheaper borrowing costs.

What is the potential impact of rate cuts on small cap stocks and technology and growth stocks?

Rate cuts could stimulate growth in small cap stocks and technology and growth stocks, especially those that are not yet profitable, as lower interest rates can reduce borrowing costs and potentially increase investments in new projects or expansion.

Why are lending and financials companies expected to benefit from lower interest rates?

Lending and financials companies like Upstart and SoFi are expected to benefit from lower interest rates as it makes borrowing cheaper, potentially improving their margins or allowing them to offer more competitive rates to customers.

What are the two specific dividend-paying stocks mentioned in the video, and why are they highlighted?

The two specific dividend-paying stocks mentioned are Realty Income and VICI Properties. They are highlighted because they are dividend aristocrats with a history of increasing dividends annually and are expected to benefit from lower interest rates, making their dividends more attractive.

How does the video suggest investors should approach dividend stocks in the context of rate cuts?

The video suggests that investors should look for dividend stocks where the stock price has come down but the business is still doing well, and the yield is still high. It also warns against the misconception that high yield is always best and emphasizes the importance of looking at a company's track record and growth potential.

Outlines

00:00

📉 Fed's Unexpected Interest Rate Cut and Market Implications

The Federal Reserve has made an unexpected move by cutting interest rates by 51 basis points, the first reduction since 2020. This action has brought the rate down to 5%. The rapid increase to 5% was a point of contention, with some arguing for maintaining high rates due to the speed of the climb. The Fed anticipates two more cuts this year, four in 2025, and two in 2026. The video discusses how industries and stocks might benefit from these rate cuts, with a focus on sectors like Real Estate Investment Trusts and utilities, which are sensitive to interest rate changes. The speaker also plans to create videos on specific stocks that could benefit and encourages viewers to subscribe for updates.

05:02

🚗 Impact of Lower Interest Rates on Various Sectors

The video script highlights how certain sectors are poised to benefit from lower interest rates. Consumer discretionary companies like Carvana and Home Depot could see increased sales as consumers are more willing to make large purchases with reduced borrowing costs. Industries and energy sectors might experience a boost due to decreased borrowing costs, potentially leading to more investments in new projects. Small-cap stocks, technology and growth stocks, especially those not yet profitable, are also expected to benefit. Lending and financials companies like Upstart and SoFi will likely see positive impacts as lower rates decrease borrowing costs. Housing and construction markets may also thrive with cheaper mortgages, benefiting home builders and construction companies. Retail could see an uptick in consumer spending due to lower borrowing costs, although the rate of increase might be slower than anticipated.

10:04

🏢 Real Estate and Dividend Stocks in Focus Amid Rate Cuts

The script discusses the potential benefits of lower interest rates for real estate and dividend stocks. Realy Income, a Real Estate Investment Trust, is highlighted for its monthly dividend payments and long-term lease agreements, which could become more attractive as interest rates decrease. The company's focus on retail and industrial tenants, along with its dividend aristocrat status, makes it a compelling investment option. Another company, VICI Properties, is noted for its focus on the lucrative Las Vegas gaming and casino industry. Its diversification into non-gaming assets and partnerships with entertainment and hospitality operators positions it for growth. The video also touches on the importance of considering a company's health and growth potential when looking at dividend stocks, rather than just focusing on high yield, which might indicate a lack of reinvestment in growth.

15:04

📈 Long-Term Outlook on Dividend Stocks and Market Performance

The final paragraph emphasizes the long-term benefits of dividend stocks, particularly in a low-interest-rate environment. It discusses how lower interest rates can stimulate economic activity, potentially increasing corporate profits and dividends. The video points out that high dividend yields do not always indicate the best investments, as they might suggest a company is not reinvesting in growth. The speaker highlights two specific dividend-paying stocks: Realy Income and VICI Properties, noting their dividend growth and the potential for increased revenue and traffic. The video concludes by suggesting that while market fluctuations are common, healthy businesses with strong fundamentals will perform well over the long run, regardless of interest rate changes.

Keywords

💡FED

The Federal Reserve, often referred to as the FED, is the central banking system of the United States. It plays a crucial role in setting monetary policy, including interest rates, which can influence economic activity. In the video, the FED's decision to cut rates by 51 basis points is discussed as a significant event that can impact various sectors and stocks, as it can lower borrowing costs and potentially stimulate economic growth.

💡Interest Rate Cuts

Interest rate cuts refer to the reduction of interest rates by a central bank, such as the FED. These cuts can encourage borrowing and spending by making loans cheaper, which can stimulate economic activity. The video discusses how different industries and stocks might benefit from such cuts, as lower rates can reduce borrowing costs for businesses and make dividend-paying stocks more attractive compared to fixed-income investments.

💡Real Estate Investment Trust (REIT)

A Real Estate Investment Trust is a type of security that invests in income-generating real estate. REITs are mentioned in the video as potentially benefiting from interest rate cuts because lower rates can reduce their borrowing costs and make their dividend yields more attractive. The video specifically mentions Realty Income as an example of a REIT that could benefit from such cuts.

💡Dividend Yield

Dividend yield refers to the annual dividend payment divided by the market price of the security. It is a measure of the return on investment for income-seeking investors. The video script discusses how a lower interest rate environment can make high dividend yield stocks more appealing, as the relative attractiveness of their income compared to bonds increases.

💡Consumer Discretionary

Consumer discretionary refers to goods and services that consumers can choose to spend on, such as cars or home improvement items. The video suggests that lower interest rates might encourage consumers to make larger purchases, benefiting companies in the consumer discretionary sector.

💡Biotechnology

Biotechnology is the use of living systems and organisms to develop or make products. The video mentions that biotech stocks could benefit from rate cuts, as lower interest rates can make borrowing cheaper for research and development, potentially leading to increased investment in the sector.

💡Travel Industry

The travel industry encompasses businesses related to transportation, hospitality, and tourism. The video discusses how lower interest rates might eventually lead to a recovery in the travel industry, as cheaper borrowing could stimulate investment and as consumers may have more disposable income to spend on travel.

💡Labor Market

The labor market refers to the collection of all laborers, their skills, the wages they command, and the process by which they are employed. The video script mentions the labor market cooling but remaining reasonably strong, which can impact consumer spending and economic growth.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The video discusses how inflation has come down, which can influence the FED's decision to cut interest rates and affect consumer spending.

💡Supply Chain Dynamics

Supply chain dynamics refer to the way supply chains operate and respond to changes in the market. The video mentions that improvements in supply chain dynamics are supporting economic growth, which can be influenced by interest rate cuts that make it easier for businesses to manage inventory and production costs.

💡Financials

Financials refer to the sector of the economy that includes banks, credit unions, insurance companies, accountancy, and other businesses that manage money. The video suggests that financial companies, particularly those involved in lending like Upstart and SoFi, can benefit from lower interest rates as it can reduce their cost of borrowing and potentially increase loan demand.

Highlights

The Federal Reserve cut rates by 51 basis points, the first cut since 2020, bringing rates to 5%.

The rapid pace of reaching 5% in interest rates is a counterargument for keeping rates high.

The Federal Reserve anticipates two more rate cuts this year, four in 2025, and two in 2026.

The Fed sees 2% GDP growth in the coming years with continued improvements in supply chain dynamics.

Consumer spending is called resilient, and the labor market is cooling but remains reasonably strong.

The unemployment rate is expected to rise from 4.2% to 4.4% by the end of the year.

Immigration contributes to better labor supply and upward pressure on unemployment.

Real Estate Investment Trusts and utilities are expected to benefit from rate cuts due to lower borrowing costs.

Consumer discretionary stocks may see increased purchases as lower interest rates could spur consumer spending.

Industrial and energy sectors could benefit from decreased borrowing costs, potentially increasing investments.

Small cap stocks and technology growth stocks, especially those not yet profitable, could benefit from lower interest rates.

Lending and financial companies like Upstart and SoFi will benefit from lower interest rates, improving borrowing costs.

Housing and construction industries may see a boost as lower interest rates make mortgages cheaper.

Retail sectors could see an uptick as consumer spending might increase due to lower borrowing costs.

Biotech and travel industries are expected to recover in the long run, benefiting from rate cuts.

Dividend-paying stocks become more attractive as their yields become competitive against fixed-income investments.

Sofi and Zillow are highlighted as companies that could benefit from lower interest rates.

Realy Income and VICI Properties are mentioned as dividend-paying stocks with potential for growth.

The video concludes by emphasizing that healthy businesses will perform well regardless of interest rate changes.

Transcripts

well the FED did what 50% of the folks

thought would happen no not a 25 basis

point cut but a 51 and this is of course

also the first cut since 2020 but as you

can see we are still quite High we're

still at 5% now the whole let's say

counterargument towards keeping those

rates extremely high for a long period

of time was because look at this look at

the pace at how quickly we reached

5% pretty previously yes we were already

at those levels were even double those

levels a long long time ago even before

I was born but it took a while until you

reach those highs now we did it not

instantly but extremely extremely

quickly and okay so far so far it has

worked out let's say let's see what

happens in the next 12 months now the

FED also anticipates two more rate Cuts

this year four in 2025 and then another

two in 2026 that's the current plan of

course as we know we've entered 2024

with also expectations of what four rate

Cuts SE R Cuts we're only going to get

well we got one right now and then

another two maybe so yeah a lot of

things can change but let's talk about

what industries will benefit rate Cuts

what stocks will benefit rate Cuts let's

talk about that in this video I'll may

try and make a couple of videos in next

couple of days about stocks that could

definitely benefit from all of that so

if you're interested in that like

subscribe do all of that would really

appreciate it if you want to support me

even further do check out the link down

in the description and in the pink

comment you the top 10 best stocks to

buy now or go to f.com couch investor

thank you very much now before we do

that here are a couple of comments that

Brad Freeman on X wrote down from the

press conference did not have the time

to watch it all so this is very very

useful so output wise they see 2% GDP

growth in the coming years continued

improvements in supply chain Dynamics

are supporting durable economic growth

Cuts allowed supply chain bottlenecks to

ease as intended economic growth was

called solid see stable second half

growth for 2024 as roughly stable versus

the first half mark

2.2% equipment and intangible

Investments picking back up from an

enamic Pace as for the employment and

consumer side they say the following

consumer spending was called resilient

still close to maximum employment I mean

we've seen

couple of companies talk about the

consumer spending being resilient so so

far I see no arguments towards the other

Camp saying oh this is not true we'll

see what happens in the next earnings

report if of course guidance has changed

towards the holiday season credit card

companies retail companies etc etc what

they are saying we'll see that in a

couple of months second Point here the

labor market is cooling but reasonably

strong nominal wage growth is easing the

labor market is now a little less tight

than pre 2019 the labor market is no

longer a primary source of inflation

they see the unemployment rate rising

from 4.2% to 4.4% by the end of the year

versus just 4% as of the June meeting

watching four signs of sharp weakening

not seeing them today last one here

immigration contributing to better labor

Supply and upward pressure on

unemployment the quote here the labor

market is in solid condition the

intention of our policy move today is to

keep it there that's what we're doing by

the way it also said that if they got

the I believe the July jobs before the

meeting the previous meeting they would

have cut with those numbers in mind so

yeah I guess I guess they're a little

bit behind so what sectors what

companies could benefit from rate Cuts

well number one is the rate one the Real

Estate Investment Trust and utilities

these sectors are typically interest

rate sensitive because they finance

their operations through debt and lower

rates mean lower borrowing costs they're

also sought for their yield dividend

yield that is which becomes more

attractive when interest rates fall

we've been talking this for a while

right you have to look at dividend

stocks where the stock has come down but

the business is still doing quite well

and so the yield is still quite high now

of course of course the market is

forward looking and so the market was

anticipating cuts and so some dividend

stocks have already gone up so the

dividend yield has come down a little

bit but still as the interest rates come

down more and more more people will be

inclined to look at those 4% 5% dividend

yield stocks we're going to talk about

two in this video category number two is

the consumer discretionary one with

lower interest rates consumers might be

more inclined to make largest purchases

such as cars so yeah we've talked about

Tesla for quite a while but here maybe

carvana as well maybe even Home Depot

and stuff like that industrial and

energy this sector could see a boost as

borrowing cost decrease potentially

increasing investments in new projects

or expansion which could stimulate

growth small cap stocks of course we've

talked about the Russell 2000 then

you've got technology and growth stocks

especially those that are not yet

profitable could definitely benefit from

lower interest rates and number six here

lending and financials companies like

upstart like Sofi will of course benefit

from lower interest rates as well and

then the last three ones are one housing

and constructions of course lower

interest rates can stimulate the housing

market by making mortages cheaper thus

benefiting home builders construction

companies and Real Estate Services

retail by the way it's not just not just

that the fact is that we need to build

more houses we need to build more hous

houses to have more and more Supply that

will definitely Drive the price of

housing down and there there is there

are a couple of companies we've talked

about that the zos the red fins the open

door I did a specific video about all

three of those on the channel That will

be in the top right corner number eight

here retail as consumer spending might

increase due to lower borrowing cost

retail sectors could see an uptick

especially those gearing up for an

increase in consumer activity I think

it's going to be slower than expected

there are some industries that will see

let's say direct benefits from rate Cuts

or you see an increase in next coming

months already maybe already right now

in the

anticipation but retail since it is a

personal thing you have to look Case by

case maybe category by category people

will still be spending a little bit less

right now because inflation well prices

of stuff is still quite High just

because inflation has come down does not

mean that the stuff did not increase

already 20% % in the last couple of

years no things are still quite

expensive now the last one here is

biotech and travel so we've talked about

some biotech companies already on this

channel abela Ginko bioworks though that

stock has done quite well in the last

couple of days then for travel Airbnb

booking Expedia Hotel stocks stuff like

that again same thing as with retail I

think it's going to take a while until

we see a big big recovery although that

those sectors have done done quite well

right since the reopening of the economy

worldwide so yeah maybe we're going to

see a quarter or two of some weakness

but over the long run I don't see how

the travel industry will not be doing

better and better especially not stocks

like Expedia booking and Airbnb now I

did talk specifically here about two

stocks so one soofi fintech company

primarily well primarily was primarily

involved in Lending student loan free

financing personal loans and mortgages

of course there's also the technology

side of things we've talked about that

so far yes pre 20109 was purely looked

at as a lending type of business but

they managed to flip it all around

become a much stronger company but of

course now with interest rates coming

down the head wins will become Tailwinds

so decrease borrowing cost this would

make it cheaper for Sofi to borrow money

which it can then lend out at slightly

higher rates potentially improving its

margin or allowing it to offer more

competitive rates to customers I've

talked about that specific aspect

already in another soofi video then

there's also increased loan demand so

lower rates often spur refinancing

activity and increase demand for

personal loans and mortgages as boring

become cheaper for customers I expect

that to become a Tailwind in the next

coming quarters then we've got Zillow of

course the real estate database company

that also facilitates buying selling and

renting so they could see some some well

several impacts positive impacts

definitely now with Zillow it's already

one of those stocks that has seen

positive momentum with the stock with

the business itself there is still still

some ways to go but the stock did

already rebound from its lows because

again the markets are forward looking so

one here housing market activity so

lower interest rates typically boost

home sales by reducing mortgage rates

which could lead to more listing and

transactions on zos platform Mortgage

Services zos Mortgage business would

likely see an upti as lower rates might

encourage more home buying and

refinancing and of course increased

traffic with more activity in the

housing market Zillo might experience

increased web traffic which can

translate to higher advertising revenue

and probably also more listings now

switching to the dividend stocks I've

talked about that at the start of this

video but there are two things here one

interest rates and dividend stocks so

lower interest rates generally make div

stocks more attractive as their yields

become more competitive against fixed

income Investments like bonds a decrease

in interest rates can stimulate economic

activity well that's the point

potentially increasing corporate profits

and by extension dividends now the

dividend stock misconception is one high

yield isn't always best it might

indicate a company is not reinvesting in

growth and two dividend stocks aren't

always boring or slow growing many show

Dynamic growth in dividend that's 100%

true just because a company does pay a

nice dividend yield does not always mean

that it's a healthy company a growing

company because it might mean that the

stock is down 50% and so the dividend

yield is now at 7% 8% or so but then a

quarter or two later dividend gets

suspended or gets a huge cut so that's

definitely something you need to keep an

eye on when you're looking for good

dividend paying companies you also have

to look at the track records and so I

want to touch on two specific dividend

paying stocks one is a monthly paying

one which is realy income we've talked

about that in the past but here's a

quick refresher so the business model is

pretty simple here so one this is known

as the monthly dividend company because

well it pays a monthly dividend and not

a quarterly one this is a re or Real

Estate Investment Trust that invest in

freestanding single tenant commercial

properties in the United States Puerto

Rico UK Europe these properties are

typically leased to retail and

increasingly industrial tenants under

long-term net lease agreements which

means the tenant is responsible for most

of the operating expenses of the

property now this is a divident

Aristocrat meaning it has increased

their dividend annually for at least 25

consecutive years and this is basically

a major overview of realy income so an

Enterprise value of around $73 billion

$4.9 billion in annualized base rent 55

years of operating history I mean it's a

huge huge company seventh largest global

reate 11 billion European portfolio

467 assets around 9.2 years remaining

leas term and they operate in 42

Industries they've had 29 consecutive

years of rising dividends if you look at

the portfolio of clients the top 20

clients yes number one Dollar General

not doing that well right now that's

3.4% of the total annualized contractual

rent they've got Walgreens Dollar Tree

711 win the casino FedEx Tesco etc etc

so it's

79.4% retail 14.5% industrial 3.3%

gaming and then 2.8% others if we look

at the European portfolio it's also I

mean if you look at the top European

clients it's 11.55% bnq 11.5% Asda

saintsbury 10.7% Tesco

8.9% decathlon 6.2% then you've got 5.6%

Kaur and so you see he grocery stores

make up

45.9% of the European portfolio Home

Improvements 16.7% Sporting Goods 8.7

and then the others make

28.7% of the European portfolio overall

in the last four years total revenue

grew at a Kiger of of

3273 per dividend yield has grown a ker

of 7% as well funds from operations not

adjusted conf find the adjusted one but

funds from operations increase as much

or close to as much as revenues 3163 per

compined annual growth rate up next is

probably if I still had my dividend

portfolio this would be I think the

number one there and that's vich

properties also a real estate investment

trust but more more focused on well

would say Las Vegas gaming casino stuff

like that I find it very very

interesting of course it's a very very

lucrative piece of real estate to have

in a booming area let's say in a booming

area so yeah vich is definitely one on

that list now vich started of course

with a focus on gaming it has been

expanding into other experiential

sectors including non-gaming assets like

golf courses and has partnership with

various entertainment and Hospitality

operators aiming to diversify its tenant

base I believe also maybe a bowling

venue or bowling venues I think and so

what do they have well they've got

around

6,300 hotel rooms 4.2 million square

foot gaming space 66,000 gaming units

6.7 million square foot meeting and

Convention space over 500 FNB Outlets

over 50 entertainment venues and four

golf courses and around around 500

retail outlets and I mean the in my

opinion these aren't things that will go

away anytime soon these are places that

always have food traffic High food

traffic no matter what as for which's

dividend durability and growth 100% cash

dividend raised every year while

targeting a 75% effo payout ratio the

annualized vishi cash dividend per share

has increased since Q3 2018 by % Kar and

I mean that's much faster and much

better than the rest of their let's say

competition and here we can see that it

is a fast growing company Revenue wise

total revenue since Q3 2020 up until Q2

2024 has increased by

243.166

per or growing at the compound annual

growth rate of

4227 per now it says your dividend yield

has only grown by 2.62% but that's

because of course the stock has also

gone down and so I'll just show you this

right here annualized growth in The Last

5 Years was closer to

7.62% so basically if you bought let's

say back here in

2018 you would have gotten 16 cents now

you're getting 43 cents I think

that's quite good especially for those

of you that want to create a dividend

paying portfolio that will just increase

and pay you more and more each and every

year right now the dividend yield sits

at 5% and the same goes for realy income

so overall that's about it you've got

Sofi you've got Zillow and then you've

got realy income and vichi for stocks if

you're interested in note of course

there are plenty of other stocks as

we've seen plenty of industries that

will can definitely benefit from rate

Cuts but at the end of the day I I think

especially what we're going to see right

now I mean the stock market did go up

for what 20 minutes or so and then it

fell back down as you can see right here

we've got the pump and then we've got

the dump eventually for the long run

rate Cuts rate hikes doesn't really

matter for specific businesses in the

long run the long run healthy businesses

will do well no matter what but yes when

interest rates go down dividend paying

companies usually tend to do quite well

because some folks are just moving away

from those bonds that they were getting

before getting well paid moving into

dividend paying companies so that's

about it for me in this video if you

enjoy this type of videos leave it a

thumbs up subscribe if you have not and

I see you all in the next one bye-bye

[Music]