Stocks that are expected to benefit from lower fed funds rate and a softer labor market

High labor cost stocks are benefiting from a rebalanced labor market and deceleration in wage growth.

The fed funds rate was lowered by 50 basis points on Wednesday to 4.75-5%, and the labor market has cooled down from overheated levels.

Goldman Sachs analysts said that labor costs account for 12% of sales for the aggregate S&P 500 (SP500) and 14% of sales for the median stock.

“A 100 basis points change in labor costs would impact S&P 500 (SP500) EPS by 0.7%, all else equal,” wrote David J. Kostin, chief U.S. equity strategist.

High labor costs stocks have a 10-percentage-point outperformance over low labor cost stocks since May. This suggests that investors are confident that wage pressures on earnings will continue to subside, Kostin said.

Industrials (XLI) have the highest implied labor costs as a percentage of revenue at 20%; energy (XLE) has the lowest at 5%.

This is Goldman Sachs’ basket of high labor cost stocks:

Communication services

• Interpublic Group of Companies (IPG) – Implied labor cost as a percentage of revenue: 43%
• Electronic Arts (EA) – Implied labor cost as a percentage of revenue: 27%
• Omnicom Group Inc. (OMC) – Implied labor cost as a percentage of revenue: 27%
• Meta Platforms (META) – Implied labor cost as a percentage of revenue: 19%

Consumer discretionary

• Hilton Worldwide Holding (HLT) – Implied labor cost as a percentage of revenue: 84%
• Marriot International (MAR) – Implied labor cost as a percentage of revenue: 78%
• Darden Restaurants (DRI) – Implied labor cost as a percentage of revenue: 37%
• Wynn Resorts Limited (WYNN) – Implied labor cost as a percentage of revenue: 23%
• O’Reilly Automotive (ORLY) – Implied labor cost as a percentage of revenue: 20%

Consumer staples

• PepsiCo Inc. (PEP) – Implied labor cost as a percentage of revenue: 18%
• Estee Lauder Companies (EL) – Implied labor cost as a percentage of revenue: 13%
• Molson Coors Beverage (TAP) – Implied labor cost as a percentage of revenue: 11%

Energy

• SLB (SLB) – Implied labor cost as a percentage of revenue: 40%
• Halliburton (HAL) – Implied labor cost as a percentage of revenue: 18%

Financials

• Arthur J. Gallagher (AJG) – Implied labor cost as a percentage of revenue: 33%
• Aon Plc (AON) – Implied labor cost as a percentage of revenue: 33%
• Moody’s Corp. (MCO) – Implied labor cost as a percentage of revenue: 30%
• Jack Henry & Associates (JKHY) – Implied labor cost as a percentage of revenue: 29%
• Fidelity National Information Services (FIS) – Implied labor cost as a percentage of revenue: 27%
• PNC Financial Services Group (PNC) – Implied labor cost as a percentage of revenue: 27%
• Bank of America (BAC) – Implied labor cost as a percentage of revenue: 26%

Health care

• IQVIA Holdings Inc. (IQV) – Implied labor cost as a percentage of revenue: 53%
• DaVita Inc. (DVA) – Implied labor cost as a percentage of revenue: 39%
• Abbot Laboratories (ABT) – Implied labor cost as a percentage of revenue: 38%
• Quest Diagnostics (DGX) – Implied labor cost as a percentage of revenue: 35%
• Universal Health Services (UHS) – Implied labor cost as a percentage of revenue: 34%
• Labcorp Holdings (LH) – Implied labor cost as a percentage of revenue: 34%
• Industrials
• Dayforce Inc. (DAY) – Implied labor cost as a percentage of revenue: 41%
• Rollins Inc. (ROL) – Implied labor cost as a percentage of revenue: 35%
• Paycom Software (PAYC) – Implied labor cost as a percentage of revenue: 34%
• Jacobs Solutions (J) – Implied labor cost as a percentage of revenue: 34%

Information technology

• Cognizant Tech Solutions (CTSH) – Implied labor cost as a percentage of revenue: 73%
• Accenture Plc (ACN) – Implied labor cost as a percentage of revenue: 56%
• ServiceNow Inc. (NOW) – Implied labor cost as a percentage of revenue: 54%
• CrowdStike Holdings (CRWD) – Implied labor cost as a percentage of revenue: 51%
• EPAM Systems Inc. (EPAM) – Implied labor cost as a percentage of revenue: 44%
• Palo Alto Networks (PANW) – Implied labor cost as a percentage of revenue: 42%
• Gartner Inc. (IT) – Implied labor cost as a percentage of revenue: 41%
• Autodesk (ADSK) – Implied labor cost as a percentage of revenue: 38%
• F5 Inc. (FFIV) – Implied labor cost as a percentage of revenue: 33%
• NetApp Inc. (NTAP) – Implied labor cost as a percentage of revenue: 29%
• Trimble Inc. (TRMB) – Implied labor cost as a percentage of revenue: 28%
• Teradyne Inc. (TER) – Implied labor cost as a percentage of revenue: 24%
• Keysight Technologies (KEYS) – Implied labor cost as a percentage of revenue: 23%
• Intel Corp. (INTC) – Implied labor cost as a percentage of revenue: 23%
• Motorola Solutions (MSI) – Implied labor cost as a percentage of revenue: 19%
• Cisco Systems Inc. (CSCO) – Implied labor cost as a percentage of revenue: 18%

Materials

• Newmont Corp. (NEM) – Implied labor cost as a percentage of revenue: 19%

Real estate

• CBRE Group Inc. (CBRE) – Implied labor cost as a percentage of revenue: 29%

Utilities

• NiSource Inc. (NI) – Implied labor cost as a percentage of revenue: 22%