Wall Street rebounded on Friday after suffering over a week on growing concerns over rising inflation and the Federal Reserve’s hawkish outlook for rate cuts in 2025. However, fresh data showed that inflation cooled in November, bringing some relief to investors who were bracing for a tough 2025.
Cooling inflation could lead to the Fed changing its stance on the monetary policy, which could see more rate cuts than expected. Inflation has declined sharply over the past year and is on track to meet the Fed’s 2% target. Given this situation, it would be ideal to invest in consumer discretionary stocks like The Walt Disney Company DIS, Carnival Corporation & plc CCL, Dolby Laboratories, Inc. DLB and GameStop Corp. GME.
Each of these stocks has seen positive earnings estimate revision in the past 60 days and carries a Zacks Rank #1 (Strong Buy) and 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inflation Cools in November
The Commerce Department said on Friday that the personal consumption expenditure (PCE) index rose 0.1% in November after increasing 0.2% in the month earlier. Year over year, the PCE index rose 2.4% after increasing 2.3% in October. Core PCE, which excludes the volatile food and energy costs, increased 0.1% sequentially in November after increasing 0.3% in October and 2.8% from the year-ago levels.
Inflation has declined sharply over the past year but showed signs of increasing over the past couple of months. The Federal Reserve started its rate cut cycle in September, with a solid 50 bonus point cut that sent markets on a rally.
However, recent data showed a slight increase in inflation, which raised concerns that the Federal Reserve could go slow on its future rate cuts. The fears finally came true when the Federal Reserve said at the end of its December policy meeting last week that it sees only two rate cuts in 2025. This came as the Federal Reserve slashed rates by another 25 basis points last week to take its benchmark policy rate in the range of 4.25-4.5%.
The Federal Reserve could go for more rate cuts if inflation continues to decline. Also, consumer sentiment has been high, after Donald Trump’s win in the Presidential election last month. The University of Michigan’s Michigan Consumer Sentiment index rose to 74 in December from 71.8 in the previous month, the highest level in seven months and higher than the consensus estimate of a rise to 73. Investing in discretionary stocks thus appears to be an ideal choice at this time.
4 Discretionary Stocks With Upside
The Walt Disney Company
The Walt Disney Company has assets that span movies, television shows and theme parks. Revenues were $91.4 billion in fiscal 2024. DIS’ fourth-quarter fiscal 2024 results reflect growth in Disney+ subscribers and Media and Entertainment Distribution businesses. Domestic theme park and resort businesses gained due to guest spending growth attributable to increases in per capita guest spending at theme parks and cruise lines.
The Walt Disney Company’s expected earnings growth rate for next year is 13.1%. The Zacks Consensus Estimate for current-year earnings improved 5.9% over the last 60 days. DIS presently has a Zacks Rank #2.
Carnival Corporation & plc
Carnival Corporation & plc operates as a cruise and vacation company. As a single economic entity, CCL forms the largest cruise operator in the world. Carnival Corporation & plcis the world’s leading leisure travel firm and carries nearly half of the global cruise guests.
Carnival Corporation’s expected earnings growth rate for next year is 16.7%. The Zacks Consensus Estimate for current-year earnings improved 4.8% over the last 60 days. CCL currently carries a Zacks Rank #2.
Dolby Laboratories, Inc.
Dolby Laboratories, Inc. develops audio and imaging technologies that revolutionize entertainment for user-generated content, TV shows, films, music, and gaming. A majority of DLB’s revenues are derived from the licensing of audio technologies. Dolby Laboratories operates on various licensing models including a two-tier model, an integrated licensing model, a patent licensing model, recoveries and collaboration arrangements.
Dolby Laboratories’expected earnings growth rate for next year is 6.9%. The Zacks Consensus Estimate for current-year earnings has improved 5.7% over the past 60 days. DLB currently carries a Zacks Rank #2.
GameStop Corp.
GameStop Corp. is the world's largest video game retailer. GME offers the best selection of new and pre-owned video gaming consoles, accessories and video game titles, in both physical and digital formats. GameStopalso publishes Game Informer, the world’s largest print and digital video game publication, featuring reviews of new title releases, game tips and news regarding current developments in the video game industry.
GameStop’s expected earnings growth rate for next year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. GME currently sports a Zacks Rank #1.
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