The Consumer Sentiment Index has dipped below expectations as future Fed rate cut hopes dim.
Investing in defensive stocks like healthcare and utility companies can help hedge against market volatility.
Some stocks Zacks likes for this environment includes Cardinal Health and Atmos Energy Corporation.
Americans are less confident about the economy than they were a couple of months back as concerns grew at the beginning of the New Year. Signs of a rise in inflation and a resilient labor market have raised concerns over the Federal Reserve’s plans for future rate cuts.
This saw consumer sentiment taking a dip in January. Major indexes have already been pushed into negative territory for this year after stocks pulled back in the final weeks of December. It would thus be wise to invest in defensive stocks such as The Ensign Group, Inc. ENSG, Cardinal Health, Inc. CAH, Atmos Energy Corporation ATO and IDACORP, Inc. IDA. 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 Sentiment Declines
The University of Michigan’s Consumer Sentiment index, released last Friday, showed that the preliminary reading of consumer sentiment declined to 73.2 in January from 74 in December, which was also lower than analysts’ expectation of a reading of 73.8.
Also, the year-ahead inflation expectations jumped to 3.3% from 2.8% in December, while the long-run inflation expectations raced to 3.3% in January from 3% in the previous month. The decline stems from consumers’ doubts about the economy’s health as inflation has grown over the past two months.
Uncertainty over how the inflation graph will move in the near term and how long it will take to reach the Federal Reserve’s 2% target has been denting consumers’ sentiment.
Higher Inflation May Halt Rate Cut Pace
Inflation rose over the past couple of months after declining sharply in the third quarter. The consumer price index (CPI) climbed 0.3% in November, its biggest gain since April 2024, after increasing 0.2% for four straight months. Core CPI, which excludes the volatile food and energy costs, also rose 0.3% sequentially in November and 3.3% from the year-ago levels.
The Federal Reserve has cut interest rates by a single percentage point in its last three policy meetings since September. However, the central bank said that rising inflation could force them to slow the pace of rate cuts and it now sees only two rate cuts in 2025.
Markets are now pricing in a 97.3% chance of the Federal Reserve keeping interest rates unchanged in its January FOMC meeting, according to the CME FedWatch tool. Higher interest rates could further weigh on consumer sentiment and keep markets volatile for a longer period.
4 Defensive Stocks With Upside
The Ensign Group
The Ensign Group, Inc. provides health care services in the post-acute care continuum, urgent care center and mobile ancillary businesses in the United States. ENSG provides health care services across the post-acute care continuum and ancillary businesses in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Oklahoma, Oregon, South Carolina, Texas, Utah, Washington, Wisconsin and Wyoming.
The Ensign Group has an expected earnings growth rate of 15.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. ENSG currently has a Zacks Rank #2. The Ensign Grouphas a beta of 0.93 and a current dividend yield of 0.19%.
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Cardinal Health, Inc.
Cardinal Health, Inc. is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. CAH has two reporting segments — Pharmaceutical and Specialty Solutions, Global Medical Products and Distribution and Others.
Cardinal Health has an expected earnings growth rate of 3.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1% over the last 60 days. CAH currently carries a Zacks Rank #2. Cardinal Health has a beta of 0.63 and a current dividend yield of 1.66%.
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Atmos Energy Corporation
Atmos Energy Corporation, along with its subsidiaries, is engaged in regulated natural gas distribution and storage business. ATO serves nearly 3.3 million customers in more than 1,400 communities in eight states from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energyoperates more than 73,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.
Atmos Energy has an expected earnings growth rate of 5.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. ATO presently carries a Zacks Rank #2. Atmos Energy has a beta of 0.71 and a current dividend yield of 2.54%.
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IDACORP, Inc.
IDACORP, Inc. is engaged in the transmission, distribution and sale of electricity services in southern Idaho and eastern Oregon through its primary subsidiary Idaho Power Company (Idaho Power).
IDACORP has an expected earnings growth rate of 5.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 60 days. IDA presently carries a Zacks Rank #2. IDACORP has a beta of 0.65 and a current dividend yield of 3.15%.
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