Buy 5 Value Stocks to Stay Safe Amid a Capricious Wall Street

In This Article:

U.S. stock markets witnessed an astonishing rally in the last two years. However, volatility reappeared on Wall Street in mid-December. The much-hyped Santa Claus rally did not materialize in the 2024-25 sessions. Markets have been fluctuating since the beginning of this year due to various reasons. We believe that volatility will continue to grip the U.S. stock markets at least in the near term.

At this juncture, investors should be prepared to minimize fluctuations in their portfolio and consequently rebalance it with suitable financial assets to maintain stability. It would be prudent to pick value stocks with a top Zacks Rank to cushion the portfolio as well as make gains from the upside potential. These stocks could prove to be valuable additions once the rally resumes.

Five such stocks are Tyson Foods Inc. TSN, The Gap Inc. GAP, Norwegian Cruise Line Holdings Ltd. NCLH, American Airlines Group Inc. AAL and Pitney Bowes Inc. PBI.

Policy-Related Uncertainties

President-elect Donal Trump will finally take oath as the 47th President of the United States on Jan. 20. Market participants are uncertain regarding Trump’s economic policies. Trump’s popular policies like the reduction of corporate tax, deregulation and the imposition of tariffs on foreign products are expected to boost economic growth, especially for domestic industries. At the same time, these policies may lead to a higher inflation rate, making it harder for the Fed’s goal of a soft landing of the economy.

Fed’s Interest Rate Cut

Market participants remained uncertain regarding the Fed’s interest rate cut in 2025. The central bank has reduced the benchmark lending rate by 1% in 2024. The Fed fund rate is currently in the range of 4.25-4.5%.

In December, the Fed’s latest “dot-plot” showed just two rate cuts of 25 basis points in 2025 instead of four indicated in September. The CME Fedwatch interest rate derivative tool currently shows that market participants are not meaningfully (probability > 50%) expecting any rate cut by the central bank before May 2025.

AI Frenzy

It remains to be seen if generative artificial intelligence (AI) frenzy continues to dominate Wall Street like the past two years and whether Trump’s tariffs or policies related to China affect the much-hyped “Magnificent 7” stocks. Market participants will closely monitor how quick the big techs can monetize their enormous expenditures related to generative AI.

Q4 2024 Earnings

Fourth-quarter 2024 earnings results will flood Wall Street starting in the third week of January.  This earnings season is likely to have strong implications for U.S. markets. Strong overall earnings and guidance will support the current stock market valuation, which some economists and financial experts have characterized as highly overvalued.