The Fed Cuts Rates: What Stocks To Buy Now?
Summary
TLDRThe 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
- ๐ The Federal Reserve has made an unexpected 0.5% interest rate cut, the first since 2020, bringing the rate down to 5%.
- ๐ฎ The Fed anticipates two more rate cuts in 2024, and two more in 2025 and 2026, aligning with their current plan.
- ๐ The Fed envisions a 2% GDP growth in the coming years, with supply chain improvements supporting economic growth.
- ๐ผ The labor market is cooling but remains strong, with the unemployment rate expected to rise from 4.2% to 4.4% by year-end.
- ๐ Real Estate Investment Trusts (REITs) and utilities are sectors that could benefit from lower interest rates due to reduced borrowing costs.
- ๐๏ธ Consumer discretionary stocks may see a boost as lower interest rates could encourage larger purchases like cars and home improvement.
- ๐ญ Industrial and energy sectors could benefit from increased investments in new projects or expansions due to decreased borrowing costs.
- ๐น Small cap stocks, technology, and growth stocks, especially those not yet profitable, could benefit from the lower interest rates.
- ๐ฆ Lending and financial companies like Upstart and SoFi could see benefits as lower interest rates decrease borrowing costs.
- ๐ก 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
๐ 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.
๐ 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.
๐ข 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.
๐ 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.
Mindmap
Keywords
๐กFED
๐กInterest Rate Cuts
๐กReal Estate Investment Trust (REIT)
๐กDividend Yield
๐กConsumer Discretionary
๐กBiotechnology
๐กTravel Industry
๐กLabor Market
๐กInflation
๐กSupply Chain Dynamics
๐กFinancials
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]
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