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5 Defensive Stocks to Buy as Fed Members Remain Hawkish
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Contraction in service sector activity last month along with the not-so-encouraging employment report gave hope to market pundits that inflationary pressure may be ebbing and the Federal Reserve may not aggressively increase rates this year to slow down economic growth.
The services PMI of the Institute of Supply Management slumped to 49.6 last month from 56.5 in November and much worse than analysts’ expectation of a reading of 55. Furthermore, on a seasonally adjusted basis, average hourly earnings increased by 4.6% in December, less than the prior month’s 4.8%. Similarly, 223,000 jobs were added in the United States during the final month of 2022, less than the 256,000 additions in November.
However, recently, two prominent Fed officials’ hawkish comments curbed investors’ hopes for less aggressive monetary policy in the near future. U.S. central bank’s San Francisco president Mary Daly said that she expects the Fed to hike interest rates above 5% to slow down inflation.
She categorically said that last year the Fed unleashed a barrage of rate hikes, but this year the central bank will raise its benchmark interest rate “just enough” to curb inflationary pressure. Atlanta Fed President Raphael Bostic also said that he expects the central bank to hike interest rates above 5% by the second quarter, and then hold onto that level for “a long time.”
The Fed, by the way, remained hawkish last year to slow down inflation that reached heights not seen since the 1980s. Last month, the central bank hiked interest rates by 50 basis points, which followed four successive three-quarter point rate hikes in an attempt to tame the rise in prices of indispensable commodities.
What’s more, investors are now pricing in a 75% possibility of a quarter of a percentage point interest rate hike in the January meeting. Last but not the least, Fed Chair Jerome Powell said that the Fed’s painful rate hikes to bring down inflation to its desired level may not appease everyone. But it’s still an essential measure, underlining the importance of the Fed’s independence.
However, any rate hike, or for that matter, a hawkish Fed doesn’t bode well for the economy or the stock market. This is because rate hikes hamper consumer outlays, and lift borrowing costs, raising concerns of an imminent recession.
Despite such worries, investors shouldn’t panic. They should place their bets on defensive stocks to ride out further market volatility caused due to rate hikes, or any expectations related to rate hikes. Defensive stocks are part of the consumer staples and utility sectors and are mostly non-cyclical in nature. Demand for food, electricity, gas, and water will remain unaltered despite the market upheaval.
Campbell Soup (CPB - Free Report) is a worldwide manufacturer and marketer of high-quality, branded convenience food products. Campbell Soup, currently, has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 3.1% over the past 60 days. CPB’s expected earnings growth rate for the current year is 4.9%.
Conagra Brands (CAG - Free Report) is one of the leading branded food companies in North America. Conagra Brands currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 8.6% over the past 60 days. CAG’s expected earnings growth rate for the current year is 11.9%.
J & J Snack Foods (JJSF - Free Report) is an American manufacturer, marketer, and distributor of branded niche snack foods. Presently, J & J Snack Foods has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 1.3% over the past 60 days. JJSF’s expected earnings growth rate for the current year is 76.1%.
Global Water Resources (GWRS - Free Report) is a water resource management company. Currently, Global Water Resources has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 5% over the past 60 days. Global Water Resources’ expected earnings growth rate for the current year is 31.3%.
Atmos Energy (ATO - Free Report) is engaged in the regulated natural gas distribution and storage business. Atmos Energy currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 0.17% over the past 60 days. ATO’s expected earnings growth rate for the current year is 6.6%.
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5 Defensive Stocks to Buy as Fed Members Remain Hawkish
Contraction in service sector activity last month along with the not-so-encouraging employment report gave hope to market pundits that inflationary pressure may be ebbing and the Federal Reserve may not aggressively increase rates this year to slow down economic growth.
The services PMI of the Institute of Supply Management slumped to 49.6 last month from 56.5 in November and much worse than analysts’ expectation of a reading of 55. Furthermore, on a seasonally adjusted basis, average hourly earnings increased by 4.6% in December, less than the prior month’s 4.8%. Similarly, 223,000 jobs were added in the United States during the final month of 2022, less than the 256,000 additions in November.
However, recently, two prominent Fed officials’ hawkish comments curbed investors’ hopes for less aggressive monetary policy in the near future. U.S. central bank’s San Francisco president Mary Daly said that she expects the Fed to hike interest rates above 5% to slow down inflation.
She categorically said that last year the Fed unleashed a barrage of rate hikes, but this year the central bank will raise its benchmark interest rate “just enough” to curb inflationary pressure. Atlanta Fed President Raphael Bostic also said that he expects the central bank to hike interest rates above 5% by the second quarter, and then hold onto that level for “a long time.”
The Fed, by the way, remained hawkish last year to slow down inflation that reached heights not seen since the 1980s. Last month, the central bank hiked interest rates by 50 basis points, which followed four successive three-quarter point rate hikes in an attempt to tame the rise in prices of indispensable commodities.
What’s more, investors are now pricing in a 75% possibility of a quarter of a percentage point interest rate hike in the January meeting. Last but not the least, Fed Chair Jerome Powell said that the Fed’s painful rate hikes to bring down inflation to its desired level may not appease everyone. But it’s still an essential measure, underlining the importance of the Fed’s independence.
However, any rate hike, or for that matter, a hawkish Fed doesn’t bode well for the economy or the stock market. This is because rate hikes hamper consumer outlays, and lift borrowing costs, raising concerns of an imminent recession.
Despite such worries, investors shouldn’t panic. They should place their bets on defensive stocks to ride out further market volatility caused due to rate hikes, or any expectations related to rate hikes. Defensive stocks are part of the consumer staples and utility sectors and are mostly non-cyclical in nature. Demand for food, electricity, gas, and water will remain unaltered despite the market upheaval.
We have, thus, highlighted five stocks from the aforementioned areas that currently boast a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Campbell Soup (CPB - Free Report) is a worldwide manufacturer and marketer of high-quality, branded convenience food products. Campbell Soup, currently, has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 3.1% over the past 60 days. CPB’s expected earnings growth rate for the current year is 4.9%.
Conagra Brands (CAG - Free Report) is one of the leading branded food companies in North America. Conagra Brands currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 8.6% over the past 60 days. CAG’s expected earnings growth rate for the current year is 11.9%.
J & J Snack Foods (JJSF - Free Report) is an American manufacturer, marketer, and distributor of branded niche snack foods. Presently, J & J Snack Foods has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 1.3% over the past 60 days. JJSF’s expected earnings growth rate for the current year is 76.1%.
Global Water Resources (GWRS - Free Report) is a water resource management company. Currently, Global Water Resources has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 5% over the past 60 days. Global Water Resources’ expected earnings growth rate for the current year is 31.3%.
Atmos Energy (ATO - Free Report) is engaged in the regulated natural gas distribution and storage business. Atmos Energy currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 0.17% over the past 60 days. ATO’s expected earnings growth rate for the current year is 6.6%.