Americans are not as confident of the economy as they were a few months back. Markets have been volatile from the beginning of this year as inflation has been showing signs of climbing again, prompting the Federal Reserve to adopt a cautious approach and pause its rate cut campaign.
Donald Trump’s victory in the U.S. Presidential election was seen as a major positive for both the economy and markets, sending stocks on a rally in the final months of 2024. However, the enthusiasm has faded this year as continued price pressures and higher borrowing costs for a longer period have dented consumer sentiment.
Given the ongoing uncertainty, it would be safe to invest in consumer staple stocks, which are considered defensive, such as Tyson Foods TSN, Ollie's Bargain Outlet Holdings, Inc. OLLI and Altria Group, Inc. MO. Each of the stocks belongs to defensive spaces like healthcare and utility and carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Also, these belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high-dividend yield and a favorable Zacks Rank.
Consumer Confidence Sinks
The Conference Board said earlier this week that the consumer confidence index dropped to 104.1 in January from an upwardly revised 109.5 in December, which also came in lower than the consensus estimate of a rise of 105.6 from the previously reported 104.7.
Consumers’ views on the labor market situation and the assessment of business conditions both fell in January, leading to a dent in confidence. This comes days after the University of Michigan’s Consumer Sentiment Index showed a reading of 71.1 for January, a sharp decline of 2.9 points or 3.9% from December's final reading of 74.
This final figure for January was below economists' prediction of 73.2 and represented a 10% drop from the same period last year.
Trump's election victory fueled a stock rally, with all three major indexes reaching record highs. However, stocks lost their earlier gains in the last weeks of December after data revealed signs of rising inflation. Additionally, Labor Department figures suggested a strong labor market, with job growth continuing in the final months of 2024.
Fed Halts Rate Cuts
The Federal Reserve also adopted a hawkish tone at the close of its December FOMC meeting, signaling fewer rate cuts in 2025, as it believes the economy remains robust and should proceed cautiously with future reductions.
On Wednesday, the Federal Reserve, at the end of its two-day policy meeting, left its benchmark policy rate unchanged in its current range of 4.25-4.5%. This came after the central bank went for three consecutive rate cuts of 100 basis points since September.
The Federal Reserve also said that although inflation has declined sharply over the past year, it is still above its 2% target. Investors are worried that slower rate cuts could lead to prolonged price pressures and higher borrowing costs.
This uncertainty and delay in rate cuts could further weigh on consumer sentiment and markets.
3 Low-Beta Consumer Staple Stocks With Upside
Tyson Foods
Tyson Foods is the biggest U.S. chicken company that produces, distributes and markets chicken, beef, pork, as well as prepared foods. TSN’s products are marketed and sold primarily by sales staff to grocery retailers, grocery wholesalers, meat distributors, military commissaries, industrial food processing companies, chain restaurants, international export companies and domestic distributors.
Tyson Foods’expected earnings growth rate for the current year is 13.6%. The Zacks Consensus Estimate for the current-year earnings has improved 0.6% over the past 60 days. TSN currently carries a Zacks Rank #2. Tyson Foods has a beta of 0.81 and a current dividend yield of 3.53%.
Ollie's Bargain Outlet Holdings, Inc.
Ollie's Bargain Outlet Holdings, Inc. is a value retailer of brand-name merchandise at drastically reduced prices. OLLI offers products principally under Ollie’s, Ollie’s Bargain Outlet, Good Stuff Cheap, Ollie’s Army, Real Brands Real Cheap!, Real Brands! Real Bargains!, Sarasota Breeze, Steelton Tools, American Way and Middleton Home.
Ollie's Bargain Outlet’s expected earnings growth rate for the current year is 13.1%. The Zacks Consensus Estimate for its current-year earnings has improved 0.6% over the past 60 days. OLLI currently has a Zacks Rank #2. Ollie's Bargain Outlet Holdingshas a beta of 0.82.
Altria Group, Inc.
Altria Group, Inc. has been evolving with the changing industry dynamics. Given the rising health consciousness and stern government regulations to discourage smoking, MO has been moving beyond traditional cigarettes and expanding in the smokeless category.
Altria Group’s expected earnings growth rate for the current year is 3.6%. The Zacks Consensus Estimate for its current-year earnings has improved 0.4% over the past 60 days. MO currently has a Zacks Rank #2. Altria Grouphas a beta of 0.64 and a current dividend yield of 7.75%.
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