SA Asks: Which stocks are best positioned for more rate cuts?
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Last week, we asked our analysts what lay ahead for interest rates. This week, our question is: Which stocks or sectors are best positioned for more rate cuts?
Seeking Alpha analysts Chris Lau of DIY Value Investing, Manika Premsingh, Jacob Hess of MTS Insights, and Victor Dergunov of The Financial Prophet gave us their thoughts on the topic.
Chris Lau: REITs, like W.P. Carey (WPC), could rally on another rate cut. Financials, like JPMorgan Chase (JPM), may trade at all-time highs. Tech firms that supply AI hardware should trade at higher price-to-earnings multiples. The most sold-off firms like Intel (INTC) should rally the most.
In the automotive industry, lower rates would help Ford Motor (F) and General Motors (GM). However, neither firm may compete effectively in the EV market. That leaves Tesla (TSLA) as the stock that rallies on another rate cut.
Mining and metal stocks may out-perform the markets. Copper mining firms like Freeport-McMoRan (FCX) are especially attractive.
The lower rate also benefits media stocks with too much debt. I prefer Disney (DIS) and Sony (SONY) over Warner Bros. Discovery (WBD) and Paramount (PARA).
In the technology sector, Nvidia (NVDA) should attract a higher valuation. Higher AI usage also drives demand for nuclear energy and Constellation Energy (CEG). Natural gas used to produce electricity benefits Enterprise Product Partners (EPD) and Enbridge (ENB).
Manika Premsingh: Rate sensitives like consumer discretionary and real estate are worth watching now, even as the macroeconomy is seen as slowing down. This is partly as they can see a short-term uplift but also because their gains have been smaller compared to those of other sectors YTD, giving the opportunity to buy them while they are still relatively low. Consumer discretionary stocks like The Hershey Company (HSY) and Amazon (AMZN), in specific, look interesting now.
Jacob Hess of MTS Insights: Broadly, I think that a gradual rate-cutting cycle will benefit sectors that traditionally rise when interest rates are falling. Growth stocks (SPYG), technology (XLK) and financials (XLF) all stand to gain from lower rate cuts. Consumer discretionary (XLY) is another cyclical sector that typically rises when rates fall, but I am less bullish there as Q2 earnings have been weaker compared to tech and financials. I also believe that small-caps (IWM) will continue to rally, but they will be more sensitive to macro data and need a “soft landing” to support moves higher.
Victor Dergunov: Regarding rate cuts and which stocks should do well, I am still very favorable on AI, high-quality tech, top small and mid-cap companies, gold, silver, mining stocks, high-quality material names, quality oil stocks, and several other segments.