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In a move which reasserted its position as an independent institution, the Federal Reserve hiked interest rates for the fourth time in 2018. By doing so, the central bank dashed the hopes of investors and defied President Trump. Earlier this week, Trump had tweeted that he found it incredible that the Fed was even considering another hike.
The Fed did strike a dovish note by reducing the number of projected rate hikes for 2019 from three to two. However, this is clearly not to the markets’ liking. Additionally, the Fed Chair sounded somewhat concerned about the economy in his post meeting press conference. This is sure to spark volatility in already gloomy market conditions.
Utilities stocks have been the biggest sector-wise gainers this year with the Utilities Select Sector SPDR (XLU) up 3.5% year to date. Their superior dividend yields and steady revenues make them good choices in a tough economic environment. Investing in this class of stocks would make for a smart move right now.
Fed Hikes Rate, Projects Two for 2019
On Dec 19, the Federal Reserve increased its target range for the federal funds rate by a quarter percentage point to 2.25% to 2.5%. This is the ninth such hike since the bank started to normalize rates in December 2015. It is also the fourth hike for the year, which comes despite frequent tweets from President Trump opposing such moves.
Several market pundits have also questioned the Fed’s resolve to keep hiking rates at a time when markets and the economy face multiple headwinds. The Fed did strike a partially dovish note by reducing its projected hikes for 2019 from three to two.
However, investors were hoping that the Fed would indicate that it wouldn’t hike rates at all next year. The language of the Fed’s policy statement also stressed that further rate hikes would be appropriate though there were indications that further policy moves would be increasingly data dependent.
Economic Outlook Lowered
The Fed also seemed to account for global headwinds, market volatility and prevailing trade tensions by lowering its outlook for the economy. The central bank now believes that U.S. GDP will grow at 3% in 2018, lower than September’s estimate of 3.1%. For 2018, GDP growth is projected at 2.3%, lower than the earlier estimate of 2.5%.
Further, estimates for core inflation for this year and 2019 have been reduced to 1.9% and 2%, each down 0.1%. However, unemployment estimates for this year and the next have remained unchanged. But the Fed has upwardly revised unemployment projections for 2020 from 3.5% to 3.6% and for 2021 from 3.7% to 3.8%.
Our Choices
The Fed’s call to raise rates for the fourth time in 2018 was along expected lines. However, its resolve to continue with the process of normalizing rates next year hasn’t gone down well with investors. Further, it has lowered its economic forecasts for the next couple of years.
Taken together, its latest policy statement will have investors for safe haven stocks. These stocks have been particularly popular this year with utilities leading the pack. Incidentally, utilities have notched up the highest sector-wise gains for 2018 up to now.
The above-average dividend yields and steady revenues make this class of stocks great options at a time when a downturn looks near. Adding them to your portfolio would make for a prudent choice. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.
Otter Tail Corporation (OTTR - Free Report) is primarily involved in the production, transmission, distribution and sale of electric energy.
Otter Tail has a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 10.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 30 days. The stock has a dividend yield of 2.7%.
IDACORP, Inc (IDA - Free Report) 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’s expected earnings growth for the current year is 5.7%. The Zacks Consensus Estimate for the current year has improved by 3.7% over the last 60 days. The stock has a dividend yield of 2.6%.The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pinnacle West Capital Corporation (PNW - Free Report) provides electricity services (wholesale or retail) in the state of Arizona through its subsidiaries.
Pinnacle West has a Zacks Rank #2 (Buy). The company has expected earnings growth of 2.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days. The stock has a dividend yield of 3.3%.
Duke Energy Corporation (DUK - Free Report) is a diversified energy company with a wide portfolio of domestic and international, natural gas and electric and regulated and unregulated businesses which supply, deliver and process energy in North America and select international markets.
Duke Energy has a Zacks Rank #2. The company has expected earnings growth of 3.7% for the current year. The Zacks Consensus Estimate for current-year earnings has moved up 0.9% over the last 60 days. The stock has a dividend yield of 4.2%.
OGE Energy Corp. (OGE - Free Report) provides energy and offers physical delivery and related services for both electricity and natural gas, primarily in the south central United States.
OGE Energy has a Zacks Rank #2. The company has expected earnings growth of 8.1% for the current year. The stock has a dividend yield of 3.6%.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
Image: Bigstock
Fed Ignores Markets' Rate Hike Woes: 5 Utilities Picks
In a move which reasserted its position as an independent institution, the Federal Reserve hiked interest rates for the fourth time in 2018. By doing so, the central bank dashed the hopes of investors and defied President Trump. Earlier this week, Trump had tweeted that he found it incredible that the Fed was even considering another hike.
The Fed did strike a dovish note by reducing the number of projected rate hikes for 2019 from three to two. However, this is clearly not to the markets’ liking. Additionally, the Fed Chair sounded somewhat concerned about the economy in his post meeting press conference. This is sure to spark volatility in already gloomy market conditions.
Utilities stocks have been the biggest sector-wise gainers this year with the Utilities Select Sector SPDR (XLU) up 3.5% year to date. Their superior dividend yields and steady revenues make them good choices in a tough economic environment. Investing in this class of stocks would make for a smart move right now.
Fed Hikes Rate, Projects Two for 2019
On Dec 19, the Federal Reserve increased its target range for the federal funds rate by a quarter percentage point to 2.25% to 2.5%. This is the ninth such hike since the bank started to normalize rates in December 2015. It is also the fourth hike for the year, which comes despite frequent tweets from President Trump opposing such moves.
Several market pundits have also questioned the Fed’s resolve to keep hiking rates at a time when markets and the economy face multiple headwinds. The Fed did strike a partially dovish note by reducing its projected hikes for 2019 from three to two.
However, investors were hoping that the Fed would indicate that it wouldn’t hike rates at all next year. The language of the Fed’s policy statement also stressed that further rate hikes would be appropriate though there were indications that further policy moves would be increasingly data dependent.
Economic Outlook Lowered
The Fed also seemed to account for global headwinds, market volatility and prevailing trade tensions by lowering its outlook for the economy. The central bank now believes that U.S. GDP will grow at 3% in 2018, lower than September’s estimate of 3.1%. For 2018, GDP growth is projected at 2.3%, lower than the earlier estimate of 2.5%.
Further, estimates for core inflation for this year and 2019 have been reduced to 1.9% and 2%, each down 0.1%. However, unemployment estimates for this year and the next have remained unchanged. But the Fed has upwardly revised unemployment projections for 2020 from 3.5% to 3.6% and for 2021 from 3.7% to 3.8%.
Our Choices
The Fed’s call to raise rates for the fourth time in 2018 was along expected lines. However, its resolve to continue with the process of normalizing rates next year hasn’t gone down well with investors. Further, it has lowered its economic forecasts for the next couple of years.
Taken together, its latest policy statement will have investors for safe haven stocks. These stocks have been particularly popular this year with utilities leading the pack. Incidentally, utilities have notched up the highest sector-wise gains for 2018 up to now.
The above-average dividend yields and steady revenues make this class of stocks great options at a time when a downturn looks near. Adding them to your portfolio would make for a prudent choice. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.
Otter Tail Corporation (OTTR - Free Report) is primarily involved in the production, transmission, distribution and sale of electric energy.
Otter Tail has a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 10.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 30 days. The stock has a dividend yield of 2.7%.
IDACORP, Inc (IDA - Free Report) 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’s expected earnings growth for the current year is 5.7%. The Zacks Consensus Estimate for the current year has improved by 3.7% over the last 60 days. The stock has a dividend yield of 2.6%.The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pinnacle West Capital Corporation (PNW - Free Report) provides electricity services (wholesale or retail) in the state of Arizona through its subsidiaries.
Pinnacle West has a Zacks Rank #2 (Buy). The company has expected earnings growth of 2.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days. The stock has a dividend yield of 3.3%.
Duke Energy Corporation (DUK - Free Report) is a diversified energy company with a wide portfolio of domestic and international, natural gas and electric and regulated and unregulated businesses which supply, deliver and process energy in North America and select international markets.
Duke Energy has a Zacks Rank #2. The company has expected earnings growth of 3.7% for the current year. The Zacks Consensus Estimate for current-year earnings has moved up 0.9% over the last 60 days. The stock has a dividend yield of 4.2%.
OGE Energy Corp. (OGE - Free Report) provides energy and offers physical delivery and related services for both electricity and natural gas, primarily in the south central United States.
OGE Energy has a Zacks Rank #2. The company has expected earnings growth of 8.1% for the current year. The stock has a dividend yield of 3.6%.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>