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The Federal Reserve cut interest rates by 50 basis points on Wednesday, its first rate cut since March 2020 and the biggest in more than 16 years. The last time the Fed cut interest rates by half a percentage point was in 2008, with just an emergency exception during the pandemic.
A 50-basis point rate cut will boost the broader economy, with growth stocks likely to gain the most. It would thus be prudent to invest in discretionary stocks. We have narrowed our search to four consumer discretionary stocks such as Traeger, Inc. COOK, Lincoln Educational Services Corporation LINC, Reynolds Consumer Products Inc. REYN and Royal Caribbean Cruises Ltd. RCL with upside for 2024.
Each of these stocks has a Zacks Rank #1 (Strong Buy) or #2 (Buy) and a Growth Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Lower Interest Rates to Boost Economy
The Federal Reserve’s decision to start its rate cut cycle was almost certain. However, the financial community was unsure about the size of the rate cut. A 25-basis point rate cut was almost assured but several market participants were anticipating a half a percentage point rate cut given the soft economic data released ahead of the Federal Open Market Committee meeting.
"The committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance," the FOMC said in a press release.
The benchmark policy rate now ranges between 4.75% and 5.00%, the lowest level since April 2023.
Moreover, the Fed’s new dot-plot indicates a Fed funds rate at 4.25-4.50% by the year-end, with a full percentage point reduction projected for 2025 and another half-point cut in 2026. This would bring the rate to a final range of 2.75%-3%.
Consumer Discretionary Stocks to Gain
Consumer discretionary stocks are considered growth assets, which are inversely related to market interest rates. Growth investors concentrate on stocks that demonstrate rapid earnings or revenue expansion, expecting these factors to drive future stock price increases.
A rate cut will help companies as it will lower production costs and provide access to inexpensive credit.
Also, the U.S. economy is growing at a solid pace. U.S. GDP grew 3% in the second quarter after slowing down in the first quarter. The Atlanta Fed also upwardly revised its third-quarter GDP growth estimate to an annual rate of 3% from the earlier projected rate of 2.5%.
4 Consumer Discretionary Stocks With Upside Potential:
Traeger
Traeger provides wood pellet grills. COOK’s pellet grills utilize wood-fired convection power, owners can grill, smoke, bake, roast, braise and barbecue meals on one cooking system.