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.